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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, 1995
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
THE FORSCHNER GROUP, 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
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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. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant on March 21, 1996, was approximately $57,962,718. On such date, the
closing price of registrant's common stock was $12.375 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 21, 1996, was 8,186,610 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
Item 1. Business.
The Forschner Group, Inc. ("Forschner" or the "Company") is the
exclusive distributor in the United States, Canada (with one minor exception for
cutlery) and the Caribbean of the Victorinox'r' Original Swiss Army'tm' Knife,
Victorinox'r' cutlery and Victorinox'r' watches. Forschner also markets its own
line of Swiss Army'r' Brand Watches and other high quality Swiss made products
under its Swiss Army Brand worldwide. 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, an
arrangement that was formalized in 1983. Forschner added Canada and the
Caribbean (including Bermuda) to its exclusive territory for Victorinox Original
Swiss Army Knives in 1992 and 1993, respectively. Victorinox Original Swiss Army
Knives as well as watches and other Swiss Army Brand products are marketed
primarily to retailers and also to corporate gift buyers as advertising
specialty products. Forschner's cutlery line, which also includes imported
products from Germany, England and Brazil, is sold primarily to the food
processing and service industries. Forschner's wholly- owned subsidiary, Cuisine
de France Limited, imports and distributes high quality French made consumer
cutlery under the Cuisine de France'r' Sabatier'r' brand.
Sales of Victorinox Original Swiss Army Knives accounted for
approximately 39% of Forschner's 1995 sales while watches and other Swiss Army
Brand products accounted for approximately 45%. Sales of professional and
consumer cutlery accounted for approximately 16% of Forschner's 1995 sales.
Approximately 6% of Forschner's sales in 1995 were to Cyrk, Inc., a
Massachusetts-based company in the business of developing, manufacturing and
distributing products for promotional programs and custom-designed sports
apparel and accessories. These products were purchased for a special promotional
program by a Cyrk customer which ended on March 31, 1995. During the three
fiscal years ended December 31, 1995 no customer other than Cyrk, Inc. accounted
for more than 10% of Forschner's sales in any fiscal year. Total Forschner sales
for the calendar years 1995, 1994 and 1993 were $126,695,000, $144,437,000 and
$102,543,000, respectively. Foreign operations accounted for 11%, 1% and 13% of
Forschner's sales, assets and net income respectively, in 1995. Foreign
operations were less than 10% of sales, assets and net income in 1994 and 1993.
At December 31, 1995 Forschner had backlog orders of approximately $4,631,000,
compared to backlog orders of $12,452,000 at December 31, 1994. 1994 backlog
orders included approximately $7,000,000 relating to the special promotional
program involving Cyrk, Inc.
The Company was incorporated on December 12, 1974 as a successor to a
New York corporation. Forschner'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, 1995, Forschner and its subsidiaries had 203
full-time employees, including 8 in Canada and 2 in Switzerland, and 2 part-
time employees.
Swiss Army Knives and Swiss Army Brand Products
Forschner is the exclusive United States, Canadian and Caribbean
distributor of Victorinox Original Swiss Army Knives and Victorinox Watches
under agreements with Forschner's principal supplier of pocket knives and
cutlery, Victorinox Cutlery Company ("Victorinox"), a Swiss corporation and
Europe's largest cutlery producer. Forschner also sells watches and other high
quality products under the Swiss Army Brand worldwide.
- 2 -
Victorinox Original Swiss Army Knives are multiblade pocket knives
containing implements capable of more functions than standard pocket knives. For
example, Forschner's most popular Swiss Army Knife model, the Classic, with a
suggested retail price of $20, features a knife, scissors, nail file with
screwdriver tip, toothpick and tweezers. Forschner markets more than 40
different models of Victorinox Original Swiss Army Knives containing up to 30
different implements (with up to 40 separate features), ranging from a basic
knife with a suggested retail price of $10 to the highest priced model at
approximately $145 as well as a SwissChamp'r' Deluxe SOS kit with a suggested
retail price of $175. Forschner also sells multi-function lock-back knives
designed for the hunting and sporting goods market. The Company distributes its
Victorinox Original Swiss Army Knives throughout the United States, Canada and
the Caribbean through its direct sales force to over 3,800 wholesalers and
retailers, including cutlery shops, department, specialty, jewelry and sporting
goods stores, catalog showrooms, mass merchandisers and mail order houses. In
Canada and the Caribbean, the Company distributes its Victorinox Original Swiss
Army Knives principally through independent sales representatives. In addition,
Forschner sells Victorinox Original Swiss Army Knives through distributors to
corporations and other organizations for promotional purposes, premium, employee
gift award programs and corporate identity catalogs. Forschner imprints these
knives primarily at its own facilities with the customer's corporate name or
logo.
Forschner's line of Swiss Army Brand products now includes nine models
of Swiss Army Brand Watches ranging from the Renegade'tm', with a suggested
retail price of $85 to the Chronograph with a stainless steel bracelet, with a
suggested retail price of $495. Swiss Army Brand Watches are sold both through
the direct sales force which markets Victorinox Original Swiss Army Knives and
through a separate direct sales force selling to approximately 550 department,
specialty and jewelry stores. In addition to its Swiss Army Brand Watches,
Forschner sells Swiss Army Brand Sunglasses and Compasses. Forschner currently
obtains a majority of its Swiss Army Brand Watches from a single Swiss supplier,
who is responsible for the final assembly of watch components manufactured by
several manufacturers. The Company believes that alternate suppliers would be
available if necessary and that the loss of its current supplier of Swiss Army
Brand Watches would not have a material adverse effect on the Company's
business.
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 pocket knives to
the Swiss armed forces. Precise imports a substantially smaller number of knives
into the United States than does Forschner. The Company also faces competition
from the manufacturers and importers of other multiblade knives and multi-tools.
Forschner is unable to determine its competitive position with respect to the
estimated seven major competitors in the general United States pocket knife
market. Forschner's direct competitors in the specialty advertising market are
manufacturers of name brand products of similar price and quality. Forschner 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 Forschner.
In 1992, in connection with the settlement of litigation with Precise,
Forschner granted Precise a perpetual worldwide royalty free license to use the
trademark Swiss Army in connection with Swiss made non-knife goods, other than
time pieces, sunglasses and compasses. Under this agreement, Precise
acknowledges Forschner's exclusive rights to the Swiss Army trademark for
non-knife products including time pieces, 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 has
successfully defended this trademark in lawsuits in
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Federal courts. Although the Company's registrations have been challenged, on
the basis of the advice of its trademark counsel, Forschner expects to prevail
in those proceedings. The Company is dedicated to a vigorous enforcement of
these exclusive trademark rights.
No U.S. trademark registrations have ever been issued for "Swiss Army"
as applied to multi-bladed knives. In 1994, in a case originally brought by
Forschner 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 Forschner 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 Forschner product." The court is
considering the scope of an order determining how Arrow must differentiate its
product. 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
multifunction pocket knives to each of Forschner and Precise. The license to the
Company is royalty free and continues so long as Forschner is a distributor of
Victorinox.
If the Company's efforts to protect its trademarks prove to be
unsuccessful, the Company may incur increased competition from non-Swiss made
knives and other products sold under the "Swiss Army" name. No assurances can be
given that such competition from non-Swiss made products would not have a
material adverse effect on the business and prospects of the Company.
Sales of Swiss Army Knives and Swiss Army Brand products are seasonal
with sales typically stronger during July through December.
Professional and Consumer Cutlery
The majority of Forschner's professional cutlery products, made of
stainless steel, are manufactured by Victorinox and by other manufacturers
located in Germany, England and Brazil. Although the majority of Forschner's
professional cutlery products are marketed under the trademarks "Forschner" and
"R.H. Forschner," the Company also has a private label business. Forschner'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. In
addition, Forschner markets the Victorinox line of floral knives to wholesale
florists. Except for retail sales made by the Company's sales force, the
majority of Forschner's cutlery is sold through manufacturers' representatives
and can be obtained from approximately 2,500 dealers.
Professional cutlery imported from Switzerland and Germany is generally
more expensive than domestic United States products. Forschner believes that it
has the largest market share of imported professional cutlery products sold in
the United States and that its share of all professional cutlery, foreign and
domestic, sold in this country is second to the dominant seller of such
products. Forschner believes that it has achieved and maintained its market
share due to the quality of its products and its merchandising efforts. Sales of
professional cutlery products are not seasonal.
- 4 -
Forschner's wholly owned subsidiary, Cuisine de France Limited, imports
and distributes cutlery products for consumer use under the "Cuisine de
France'r' Sabatier'r'" brand. Cuisine de France Limited holds the U.S. trademark
for "Cuisine de France" and has been granted the right by the holder of the U.S.
trademark registration for "Sabatier" to use the name as applied to knives in
the United States. Cuisine de France Limited has exclusive distribution
agreements with three separate French cutlery manufacturers located in the
Thiers region of France where Sabatier cutlery was originated. Cuisine de France
Limited distributes its consumer cutlery through sales representatives to retail
cutlery stores and department stores.
Victorinox Agreements
All of Forschner's products are manufactured by independent suppliers.
Forschner's principal supplier of pocket knives and cutlery is Victorinox, which
has manufactured the Original Swiss Army Knife for the Swiss Army for more than
100 years. The loss of this supplier would have a material adverse effect on
Forschner's business. Forschner, now 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 Forschner's behalf by Mr. Louis Marx, Jr. and Mr. Stanley R. Rawn,
Jr., both now Forschner Directors, and Mr. Charles Elsener, Sr., Chief Executive
Officer of Victorinox, Forschner 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, together with Mr. James W. Kennedy,
then Co-Chairman of the Company, held extensive conversations, principally in
Switzerland, with Victorinox looking to expand the scope of Forschner's
exclusive territory. This resulted in Forschner obtaining exclusive
distributorship rights first in Canada, and then in Bermuda and the Caribbean
areas, as well as Forschner's receipt of exclusive U.S., Canadian and Caribbean
distribution rights to the Victorinox watch, which is supplied to the Company by
another Swiss manufacturer.
The U.S. Distribution Agreement, together with the Company's agreements
with respect to the rights obtained in 1992 and 1993 (together, the "Victorinox
Agreements"), provides:
Forschner 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 Forschner
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 through December 12,
1998 and is subject to renewal at five year intervals at
Forschner's option unless, in any two consecutive years,
purchases of Products by Forschner fall below the average
purchases for 1981 and 1982, which was 19,766,035 Swiss francs.
Forschner's distribution rights in Canada and the Caribbean are
for initial terms of seven years (expiring in 1999 and 2000,
respectively), subject to renewal for successive five year
periods. In the event that Victorinox elects not to renew
Forschner's Canada distribution rights, Victorinox will be
required to pay Forschner the amount of $3,500,000.
During each calendar year Forschner must purchase from
Victorinox at least 85% of the maximum quantities of each of
Swiss Army Knives and cutlery
- 5 -
(expressed in Swiss francs) purchased in any prior year. The
only remedy of Victorinox for Forschner's failure to achieve
these goals would be the termination of Forschner's U.S.
distribution rights. The Company purchased the required minimum
for 1995. By agreement dated December 18, 1995, Victorinox and
the Company agreed that for 1996 the minimum purchase
requirement for Swiss Army Knives would be reduced to 75% of the
maximum quantity purchased in any prior year.
In each calendar year Victorinox must, if requested, furnish
Forschner with up to 105% of each type of product purchased
during the immediately preceding year. Victorinox has
historically been able to accommodate Forschner'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 Forschner.
Pricing provisions assure that the prices paid by Forschner for
products shipped to the United States will be as low or lower
than those charged to any other Victorinox customer. In
addition, Forschner is granted a 4% discount on purchases of
pocket knives and a 3% discount on purchases of cutlery. For
products shipped directly to Canada and the Caribbean (including
Bermuda), the prices paid by Forschner are Victorinox's regular
export prices. Forschner also pays a royalty to Victorinox of 1%
of net sales of Victorinox Watches. In addition, Victorinox has
informally undertaken to share in Forschner's promotional costs
with respect to the Victorinox brand in an amount of up to
500,000 Swiss francs per year.
Forschner will not add any new cutlery items to its current
sales program without the agreement of Victorinox.
Forschner will have complete discretion as to advertising,
packaging, pricing and other marketing matters.
In consideration of the grant of the Canada distributorship rights,
Forschner issued to Victorinox 277,066 shares of common stock, par value $.10
per share, of Forschner ("Common Stock"). In consideration for the grant of the
Caribbean distribution rights, the Victorinox watch distribution rights and the
acquisition by Forschner of Victorinox's 20% interest in a subsidiary of
Forschner, Forschner 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 Forschner Common Stock. All of the shares issued upon exercise of the
warrant were subsequently sold to Brae Group, Inc. ("Brae"), a corporate
shareholder of Forschner that is controlled by Louis Marx, Jr., a Director of
Forschner, in exchange for shares of the common stock of that corporation.
Victory Capital LLC
In 1994, in furtherance of its acquisition strategy, Forschner 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 (currently
representing approximately 20.3% of the equity) of Forschner Enterprises, Inc.,
a privately held corporation which has since been merged into Victory Capital
LLC ("Victory")
- 6 -
which currently conducts its operations through small and medium-sized companies
which it believes present an opportunity for significant equity growth and which
may benefit from Victory's management, operating and financial expertise.
Victory may also acquire interests in businesses that can benefit from synergies
with, and the reputation of, Forschner. Victory seeks to acquire interests which
represent a controlling position in the entities in which it acquires interests.
Victory currently has equity and other interests in several private and publicly
traded companies. The preferred units held by Forschner carry a preference on
liquidation equal to their $10 per unit cost as well as a cumulative preferred
dividend.
490,000 shares of Victory's common units and 981,474 shares of Victory's
Series B Preferred Units (currently representing, in the aggregate,
approximately 42.7% of Victory's outstanding equity) are held by Brae, a
shareholder of Forschner that is controlled by Louis Marx, Jr., a Director of
Forschner. Pursuant to an agreement between Victory and Brae, if certain
conditions are met, Brae is required to purchase from Victory at Victory's cost
10%, and may purchase up to 20%, of the "equity portion" (defined as the common
and warrant portion, or the preferred and warrant portion if no common is
purchased provided that the preferred portion is participating) of each
investment made by Victory. Brae may allocate all or a portion of the securities
to be acquired pursuant to such agreement among the officers, directors,
employees, consultants and common stockholders of Victory in such proportions as
Brae shall determine.
Mr. Marx, a Director of Forschner, is Co-Chairman of the Board and
a director of Victory. Stanley R. Rawn, Jr., Senior Managing Director and a
Director of Forschner, and A. Clinton Allen, Herbert M. Friedman, M. Leo Hart
and Eric M. Reynolds, Directors of Forschner, also serve as directors of
Victory.
Simmons Outdoor Corporation
On or about November 17, 1995, S.O.C. Corporation ("Purchaser"), a
Delaware corporation and a wholly owned subsidiary of Blount, Inc. ("Blount"), a
Delaware corporation which itself is a wholly owned subsidiary of Blount
International, Inc., commenced a tender offer (the "Offer") for all outstanding
shares (the "Shares") of the common stock of Simmons Outdoor Corporation, a
Delaware corporation ("Simmons"), at $10.40 per share.
Pursuant to the Tender and Option Agreement dated November 13, 1995 (the
"Tender and Option Agreement") by and among Blount, Purchaser, Noel Group, Inc.,
a Delaware corporation, and Forschner, Forschner tendered pursuant to the Offer
655,000 Shares (the "Simmons Shares"), which shares represented all of the
Shares beneficially owned by Forschner. As of December 18, 1995, Purchaser
acquired pursuant to the Offer the Simmons Shares (together with all other
Shares tendered pursuant to the Offer). Forschner received in cash pursuant to
the Offer $10.40 per Share, or $6,812,000 in the aggregate. These shares had
been purchased by Forschner for an aggregate purchase price of $3,856,452.
Item 2. Properties.
The executive and administrative offices of Forschner occupy
approximately 32,500 square feet of leased space in an office building located
in Shelton, Connecticut. Forschner moved into these premises in September, 1993.
The initial term of the lease on this space expires on September 1, 2001,
subject to a renewal option for an additional five-year term.
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In addition, Forschner leases approximately 7.4 acres in Shelton,
Connecticut upon which the landlord has constructed a 85,000 square foot
building, increased in January 1995 from 60,000 square feet, which Forschner
uses as a facility for warehousing, distribution, imprinting and assembly. The
lease commenced in June, 1991 and has a term of ten years. Forschner also leases
approximately 13,000 square feet in a building in Toronto, Canada which it uses
for office space and warehousing of products. The lease commenced in December,
1992 and has a term of five years.
In 1996, Forschner entered into a four-year lease for 7,000 square feet
of space in a 30,000 square foot building in Nidau, Switzerland for use as a
distribution center.
Forschner 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.
Arrow filed on November 15, 1994 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". Arrow failed to file evidence in support of its cancellation
petitions and the Company moved to dismiss the petitions on ground of lack of
prosecution. Arrow has opposed the motions to dismiss, arguing inadvertent
failure to prosecute. 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 - Swiss Army Knives and Swiss Army Brand
Products".
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
A. Market Information.
Shares of Forschner's Common Stock are traded on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol FSNR. The range of high
and low transactions for shares of Common Stock, which is the only class of
capital stock of Forschner outstanding, as reported by Nasdaq since the first
quarter of 1994 were as follows:
Fiscal 1994 Fiscal 1995 Fiscal 1996*
------------------- ------------------- -----------------
High Low High Low High Low
First Quarter $16 $14 3/4 $12 7/8 $10 1/2 $12 5/8 $11 1/4*
Second Quarter 16 1/4 10 1/4 10 7/8 10
Third Quarter 14 1/2 11 12 1/2 10 1/4
Fourth Quarter 13 10 1/2 12 3/8 11 1/8
*Through March 13, 1996.
The public market for Common Stock is limited and the foregoing
quotations should not be taken as necessarily reflective of prices which might
be obtained in actual market transactions or in transactions involving
substantial numbers of shares.
B. Holders.
On March 13, 1996 shares of Common Stock were held by 379 persons, based
on the number of record holders, 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 Forschner
and other factors which its Board of Directors may deem appropriate. Under
Forschner's bank loan agreement, as amended, Forschner has agreed not to declare
or pay any dividends unless immediately following such payment Forschner's ratio
of indebtedness to tangible net worth, calculated as set forth in the agreement,
does not exceed 0.75 to one, and Forschner's ratio of current assets to current
liabilities is in excess of 2.5 to one.
- 9 -
Item 6. Selected Financial Data
The following selected financial data for the five years ended December
31, 1995, was derived from the consolidated financial statements of Forschner.
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,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net sales.............................. $126,695 $144,437 $102,543 $74,148 $60,098
Gross profit........................... 44,264 55,804 42,027 29,779 21,796
Selling, general and administrative expenses. 40,265 40,293 30,753 21,016 17,956
Operating income....................... 3,999 15,511 11,274 8,763 3,840
Gain on sale of investments............ 1,771 37 - - -
Other income (expense), net............ (134) 445 251 143 (287)
Income before income taxes and cumulative
effect of accounting change.......... 5,636 15,993 11,525 8,906 3,553
Income tax provision................... 2,523 6,633 4,221 3,974 1,592
Income before cumulative effect of
accounting change.................... 3,113 9,360 7,304 4,932 1,961
Cumulative effect of accounting
change for income taxes.............. - - 220 - -
--------------------------------------------------
Net income............................. $3,113 $ 9,360 $ 7,524 $ 4,932 $ 1,961
Earnings per share:
Income before cumulative effect of
accounting change.................. $ 0.38 $ 1.16 $ 1.04 $ 0.80 $ 0.45
Cumulative affect of accounting
change for income taxes............ - - 0.03 - -
--------------------------------------------------
Net income........................... $ 0.38 $ 1.16 $ 1.07 $ 0.80 $ 0.45
Other Financial Data:
Current assets......................... $74,355 $78,641 $57,551 $43,664 $24,994
Total assets........................... 101,230 105,708 78,004 54,283 28,955
Current liabilities.................... 16,291 23,932 17,651 10,756 6,790
Long-term debt ........................ - - - - 8,140
Stockholders' equity................... $84,939 $81,775 $60,353 $43,038 $13,280
Weighted average number of shares
outstanding.......................... 8,236 8,062 7,053 6,186 4,359
- 10 -
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
In 1995, sales totalled $126.7 million, a 12% decrease from 1994.
However, excluding sales to a single customer for a special promotional program,
Forschner experienced sales growth of 10% primarily due to growth in its Swiss
Army Brand Watch, cutlery and a marginal increase in sales of Victorinox
Original Swiss Army Brand Knives. Sales relating to this single customer for
this promotional program represented 6% and 25% of net sales in 1995 and 1994,
respectively. No programs are currently scheduled with this customer for 1996.
The following table shows, as a percentage of net sales, the Company's
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1995:
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Net sales.................................. 100.0% 100.0% 100.0%
Cost of Sales.............................. 65.1 61.4 59.0
----- ---- ----
Gross Profit............................. 34.9 38.6 41.0
Selling, general and administrative
expenses before special charitable
contributions............................ 31.8 26.9 30.0
Special charitable contribution............ - 1.0 -
---- ---- ----
Total selling, general and
administrative expense................... 31.8 27.9 30.0
Operating income........................... 3.1 10.7 11.0
Interest expense........................... (.2) - (.1)
Interest income............................ .4 .3 .2
Gain on sale of investments................ 1.4 - -
Equity interest in
unconsolidated affiliates................ (.4) - -
Other income (expense), net................ .1 .1 .1
---- ----- -----
Income before income taxes
and cumulative effect of
accounting change........................ 4.4 11.1 11.2
Income tax provision....................... 2.0 4.6 4.1
---- --- ----
Income before cumulative effect of
accounting change.......................... 2.4 6.5 7.1
Cumulative effect of accounting
change for income taxes.................. - - .2
---- ----- ----
Net income................................. 2.4% 6.5% 7.3%
==== ==== ====
Comparison of the Years Ended December 31, 1995 and December 31, 1994
With sales of $126.7 million for the year ended December 31, 1995,
Forschner posted a 12% decrease compared to $144.4 million reported in 1994.
Sales of Swiss Army Brand products decreased significantly in 1995, due to
Forschner's decreased participation in a special promotional program with
- 11-
one customer that accounted for 6% and 25% of Forschner's 1995 and 1994 net
sales, respectively. Excluding the special promotional program, the Company's
sales increased by 10% for the year. For the year, excluding the promotional
program, Swiss Army Brand Watch sales increased 19% and Victorinox Original
Swiss Army Knife sales increased by 3%. Cutlery sales, which include both the
Cuisine de France Sabatier line of cutlery and the R.H. Forschner professional
line, increased 7% in 1995.
Gross profit for the year ended December 31, 1995, was $44.3 million,
21% lower than in 1994. This is due primarily to lower sales volume as a result
of the special promotional program with one customer in 1994 and unfavorable
exchange rates. Forschner's gross profit margin is a function of both product
mix and Swiss franc exchange rates. Since Forschner imports virtually all of its
products from Switzerland, its costs are affected by both the spot rate of
exchange and by its foreign currency hedging program. Forschner attempts to
mitigate the impact on gross margin of exchange rate changes through selective
hedging of anticipated Swiss franc purchases. To the extent the Company is not
hedged, a weakening of the dollar versus the Swiss franc will negatively impact
the profitability of the Company. Based on current estimated Swiss franc
requirements, the Company is hedged through the first quarter of 1996.
Selling, general and administrative expenses for the year ended December
31, 1995 were $40.3 million, $1.5 million or 4% higher than the amount for the
comparable period in 1994, excluding a special charitable contribution of $1.5
million in 1994. The expense increase resulted primarily from increased selling
expenses and increased expenditures in the areas of merchandising and promotion.
As a percentage of net sales, total selling, general and administrative expenses
(including the charitable contribution) increased from 27.9% in 1994 to 31.8% in
1995.
Interest income of $557,000 for the year ended December 31, 1995 was
$166,000 or 42% higher than interest income for the comparable period in 1994,
due to increased invested cash balances during most of 1995.
Gain on sale of investments of $1.8 million was due primarily to the
sale of the common stock of Simmons Outdoor Corporation in 1995. Gain on sale of
investments was not significant in 1994.
Equity interest in unconsolidated affiliates with a loss of $548,000 in
1995 was due to the Company using the equity method of accounting for its
investments in Simmons Outdoor Corporation and SweetWater, Inc. in 1995. The
equity method of accounting was not applicable in 1994.
As a result of these changes, income before income taxes and cumulative
effect of accounting change for the year ended December 31, 1995 was $5.6
million versus $16.0 million for 1994, a decrease of $10.4 million or 65%.
Income tax expense was provided at an effective rate of 44.8% for the
year ended December 31, 1995 versus 41.5% in 1994 due to increased state taxes.
Net income was $3.1 million for the year ended December 31, 1995 versus
$9.4 million in 1994, representing a decrease of $6.3 million or 67%.
On a per share basis, net income for the year ended December 31, 1995
was $0.38 compared with $1.16 in 1994.
- 12 -
Comparison of the Years Ended December 31, 1994 and December 31, 1993
With sales of $144.4 million for the year ended December 31, 1994,
Forschner posted a 41% increase over the $102.5 million reported in 1993. Sales
of Swiss Army Brand products increased significantly in 1994, due, in part, to
Forschner's continued participation in special promotional programs with a
customer that accounted for 25% and 14% of Forschner's 1994 and 1993 sales. No
programs are currently scheduled with this customer after the conclusion of the
special programs in the first quarter of 1995. Furthermore, an agreement with
this customer in the fourth quarter of 1994 which resulted in a change in
pricing did adversely affect gross profit in first quarter of 1995. Excluding
the special promotional programs, the Company's sales were up 23% for the year.
For the year, including the promotional programs, Swiss Army Brand Watch sales
rose 100% and Victorinox Original Swiss Army Knife sales were down marginally
(1.5%). Cutlery sales, which include both the Cuisine de France Sabatier line of
cutlery and the R.H. Forschner professional line, increased 14% in 1994.
Gross profit for the year ended December 31, 1994, was $55.8 million 33%
higher than in 1993, due to the profit from increased sales volume, offset by a
reduction in gross profit margins which decreased from 41.0% in 1993 to 38.6% in
1994. The lower margin reflects the impact of shipments of sunglasses in 1994 at
lower gross profit margins than the Company's average for all other products and
a pricing agreement relating to Forschner's continued participation in special
promotional programs with one customer which was reached in the fourth quarter
of 1994. Forschner's gross profit margin is a function of both product mix and
Swiss franc exchange rates. Since Forschner imports virtually all of its
products from Switzerland, its costs are affected by both the spot rate of
exchange and by its foreign currency hedging program. Forschner attempts to
mitigate the impact on gross margin of exchange rate changes through selective
hedging of anticipated Swiss franc purchases.
Selling, general and administrative expenses, excluding a special
charitable contribution of $1.5 million, for the year ended December 31, 1994
were $38.8 million, $8.0 million or 26% higher than the amount for the
comparable period in 1993. The expense increase resulted primarily from
personnel costs relating to increases in headcount (principally in its sales
force and distribution function) and increased expenditures in the areas of
advertising, printed material, occupancy and market research. As a percentage of
net sales, total selling, general and administrative expenses (including the
charitable contribution) decreased from 30.0% in 1993 to 27.9% in 1994.
Interest income of $391,000 for the year ended December 31, 1994 was
$214,000 or 121% higher than interest income for the comparable period in 1993,
due to increased invested cash balances during most of 1994.
As a result of these changes, income before income taxes and cumulative
effect of accounting change for the year ended December 31, 1994 was $16.0
million versus $11.5 million for 1993, an increase of $4.5 million or 39%.
Income tax expense was provided at an effective rate of 41.5% for the
year ended December 31, 1994 versus 36.6% in 1993. The 1993 rate reflects the
one-time benefit of a favorable settlement of certain tax contingencies effected
in the third quarter.
Income before cumulative effect of accounting change was $9.4 million
for the year ended December 31, 1994 versus $7.3 million in 1993, representing
an increase of $2.1 million or 28%.
- 13 -
After 1993's one-time cumulative adjustment as required by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
added $.2 million to income, net income of $9.4 million for 1994 compared with
$7.5 million in 1993, for an increase of 24%.
On a per share basis, income before the cumulative effect of an
accounting change for the year ended December 31, 1994 was $1.16 compared with
$1.04 in 1993. After the cumulative effect of an accounting change for income
taxes of $0.03 in 1993, net income per share of $1.16 in 1994 compared with
$1.07 in 1993, an increase of 9%.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995 Forschner had working capital of $58.1 million
compared with $54.7 million as of December 31, 1994, an increase of $3.4
million. Sources of working capital in 1995 included net income of $3.1 million
and depreciation and amortization of $3.2 million, and proceeds from the sales
of Simmons Outdoor Corporation common stock of $6.8 million. Significant uses of
working capital included investments in common stock of $3.7 million, $2.8
million in additions to other assets and capital expenditures of $1.4 million.
The Company currently has no material commitments for capital expenditures.
Cash used for operating activities was approximately $16.4 million in
the year ended December 31, 1995 compared with cash provided by operating
activities of $8.9 million in the comparable period of 1994. The large change
resulted from a decrease in net income from 1994 to 1995. In addition, increases
in inventory, prepaid and other current assets, a decrease in accounts payable
and a smaller increase in accounts receivable in 1995 versus 1994 were the
primary contributors to the decrease.
Forschner meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its revolving credit
agreements. As of December 31, 1995, Forschner had no outstanding borrowings
under its revolving line of credit agreements, leaving unused lines of $20
million. Forschner's short-term liquidity is affected by seasonal changes in
inventory levels, payment terms and seasonality of sales. The Company's current
liquidity levels and financial resources continue to be sufficient to meet its
operating needs.
Item 8. Financial Statements and Supplementary Data
The financial information required by Item 8 is included elsewhere in
this report. See Part IV, Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
- 14 -
PART III
Item 10. Directors and Executive Officers of the Registrant
The Directors and Executive Officers of Forschner are as follows:
Director
and/or
Name Age Position(s) Officer Since
---- --- ---------- --------------
J. Merrick Taggart 45 President Dec., 1995
Peter W. Gilson 56 Chairman of the Executive
Committee and Director(1) Dec., 1994
Thomas D. Cunningham 46 Executive Vice President,
Chief Financial Officer
and Director(2) Mar., 1994
Stanley R. Rawn, Jr. 68 Senior Managing Director
and Director(3) 1990
Harry R. Thompson 66 Managing Director(4) Dec., 1994
Stanley G. Mortimer III 53 Executive Vice President
and Director(5) Dec., 1994
Thomas M. Lupinski 43 Senior Vice President, Controller,
Secretary and Treasurer 1986
Michael J. Belleveau 39 Vice President Jun., 1994
Leslie H. Green 48 Vice President Dec., 1995
David J. Parcells 37 Vice President - Operations 1992
Jerald J. Rinder 49 Vice President Feb., 1996
Robert L. Topazio 47 Vice President Feb., 1996
Douglas M. Rumbough 39 Vice President 1992
A. Clinton Allen 52 Director(6) 1993
Thomas A. Barron 44 Director 1983
Vincent D. Farrell, Jr. 49 Director(7) 1992
Herbert M. Friedman 64 Director(8) 1981
M. Leo Hart 47 Director(9) 1991
James W. Kennedy 45 Director(10) 1981
Keith R. Lively 44 Director Oct., 1994
Lindsay Marx 30 Director Feb., 1994
Louis Marx, Jr. 64 Director(11) 1990
Eric M. Reynolds 43 Director Mar., 1994
John Spencer 66 Director(12) 1990
John V. Tunney 61 Director(13) 1992
1. Mr. Gilson is Chairman of Forschner's Executive Committee.
2. Mr. Cunningham is a member of Forschner's Executive Committee,
Management Committee and Special Products Committee.
- 15 -
3. Mr. Rawn is a member of Forschner's Executive Committee, Management
Committee, Nominating Committee and Special Products Committee.
4. Mr. Thompson is Chairman of Forschner's Special Products Committee.
5. Mr. Mortimer was elected a Director of Forschner in December, 1994. He
had previously served as a Director of Forschner from June 1987 to June
1994. Mr. Mortimer was named Executive Vice President in May, 1988. He
had become a Senior Vice President in September, 1985. Prior to that
time, he was a Vice President. Mr. Mortimer is a member of Forschner's
Special Products Committee.
6. Mr. Allen is Chairman of Forschner's Stock Option and Compensation
Committee and Acquisition Committee.
7. Mr. Farrell is Chairman of Forschner's Audit Committee and a member of
Forschner's Acquisition Committee and Executive Committee.
8. Mr. Friedman is Chairman of Forschner's Charitable Insurance Program
Committee and a member of Forschner's Executive Committee, Audit
Committee, Nominating Committee and Special Products Committee.
9. Mr. Hart was Co-Chairman of the Board and Chief Executive Officer from
February 1994 to December 1995. He had become Executive Vice President
and a Director in October, 1991. Mr. Hart is a member of Forschner's
Management Committee, Executive Committee and Charitable Insurance
Program Committee.
10. Mr. Kennedy was Co-Chairman of the Board and Chief Executive Officer
from February 1994 to December 1995. He had been President and Chief
Executive Officer since March, 1988. He had become President and a
Director in June, 1987 and a Senior Vice President in September, 1985.
Prior to that time he was a Vice President. Mr. Kennedy is a member of
Forschner's Executive Committee and Management Committee.
11. Mr. Marx is Chairman of Forschner's Management Committee and Nominating
Committee and a member of Forschner's Executive Committee. Mr. Marx was
Chairman of Forschner's Executive Committee until June, 1995.
12. Mr. Spencer is a member of Forschner's Audit Committee and Stock Option
and Compensation Committee.
13. Mr. Tunney is a member of Forschner's Stock Option and Compensation
Committee, Acquisition Committee and Charitable Insurance Program
Committee.
Directors hold office until the next annual meeting of stockholders of
Forschner and until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors.
- 16 -
The following sets forth the principal occupations of each of
Forschner's officers and directors during the previous five years, as well as
the names of any other public or affiliated companies of which they are
directors.
J. Merrick Taggart, President of Forschner, was elected to that position
on December 13, 1995. From 1993 to November 1995 Mr. Taggart was President of
Duofold, Inc, a sports apparel company, and Pringle of Scotland U.S.A., an
apparel company. From 1990 to November 1992 Mr. Taggart was President of O'Brien
International, a manufacturer and marketer of water sports equipment. Prior to
that Mr. Taggart was Senior Vice President of Product Development for the
Timberland Company, a footwear and apparel company.
Peter W. Gilson, Chairman of the Executive Committee and a Director of
Forschner, has served as President and Chief Executive Officer of Physician
Support Systems, Inc., a company specializing in the management of physician's
health care practices, since 1991. From 1988 to the present, Mr. Gilson has also
served as President and Chief Executive Officer of the Warrington Group, Inc., a
manufacturer of safety products which was previously a division of The
Timberland Company. From 1987 to 1988, Mr. Gilson served as Chief Operating
Officer of The Timberland Company, a manufacturer of footwear and outdoor
clothing. From 1978 to 1986, he served as President of the Gortex Fabrics
Division of W.L. Gore Associates. Mr. Gilson is also a director of SweetWater,
Inc. ("SweetWater"), a manufacturer and marketer of portable water filtration
systems.
Louis Marx, Jr., Chairman of the Management Committee and a Director of
Forschner, has been associated with the Company for over 20 years and has played
the key role in helping to guide its affairs during that entire period. Through
discussions with the Chief Executive Officer of Victorinox, he and Mr. Rawn were
responsible for Forschner obtaining exclusive U.S. distribution rights for
Victorinox products and later, together with Mr. Rawn and Mr. Kennedy,
negotiated the expansion of Forschner's distribution rights to include Canada,
Bermuda and the Caribbean and also obtained for the Company exclusive
distribution rights to the Victorinox Watch. In a prior year he and Mr. Rawn
played an important part in negotiating, on behalf of Forschner, the settlement
of potentially expensive litigation, and more recently, Mr. Marx has played an
active role in the Company's investment policy and, together with the Company's
advisors, has successfully managed the Company's currency hedging program. Mr.
Marx is Chairman of the Executive Committee and a director of Noel Group, Inc.
("Noel"), a publicly held company which conducts its principal operations
through small and medium sized operating companies in which it holds controlling
interests, a director and member of the Compensation Committee of Cyrk, Inc.
("Cyrk"), a distributer of products for promotional programs and custom-designed
sports apparel and accessories, and Co-Chairman of the Board and a director of
Tigera Group, Inc. ("Tigera"), an acquisition company. Mr. Marx has been a
venture capital investor for more than thirty years. Mr. Marx, together with his
close business associates, have been founders or substantial investors in such
companies as Pan Ocean Oil Corporation, Donaldson, Lufkin & Jenrette, Bridger
Petroleum Corporation Ltd., Questor Corporation, Environmental Testing and
Certification Corporation, Garnet Resources Corporation, The Prospect Group,
Inc. and Noel. Mr. Marx served as a director of The Prospect Group, Inc., a
company which, prior to its adoption in 1990 of a Plan of Complete Liquidation
and Dissolution, conducted its major operations through subsidiaries acquired in
leveraged buyout transactions ("Prospect"), from February 1986, and as Chairman
of Prospect's Asset Committee from October 1988, until January 1990. Mr. Marx
serves as a trustee of the New York University Medical Center and Middlebury
College and as Chairman of the Madison Avenue Fund for Children. Mr. Marx is
also Co-Chairman and a director of Victory. He is President and a director of
Victorinox-Swiss Army Knife Foundation, a non-profit corporation formed by
Forschner for charitable purposes including the
- 17 -
improvement of the welfare of underprivileged children. Mr. Marx is the father
of Lindsay Marx, a Director of Forschner.
Thomas D. Cunningham, Executive Vice President, Chief Financial Officer
and a Director of Forschner, was appointed to those offices in March 1994. Prior
to joining Forschner, Mr. Cunningham had been with JP Morgan & Co. Incorporated
since 1973 where he was appointed a Vice President in 1979, Senior Vice
President in 1987, Managing Director Corporate Finance in 1988 and Managing
Director - Corporate Banking Group in 1993. Mr. Cunningham is also a director of
Emcor Group, Inc., a mechanical and electrical contractor.
Stanley R. Rawn, Jr., Senior Managing Director and a Director of
Forschner, actively participates with Messrs. Marx and Kennedy in furthering the
relationship between Forschner and Victorinox as well as in coordinating
management strategies. He has also played an important part in obtaining and
expanding the Company's exclusive distribution rights covering Victorinox
products. Mr. Rawn was Chairman and Chief Executive Officer and a director of
Adobe Resources Corporation, an oil and gas exploration and production company
from November, 1985 until the merger of that company in May, 1992. Mr. Rawn is
also the Chief Executive Officer and a director of Noel; a director of Prospect,
Victory, Staffing Resources, Inc., a temporary help corporation, and Victorinox
- - Swiss Army Knife Foundation; and a Trustee of the California Institute of
Technology.
Harry R. Thompson, Managing Director of Forschner was appointed Managing
Director in December 1994. From 1987 to 1995, Mr. Thompson was president of The
Strategy Group, a business and marketing consulting firm. Mr. Thompson had
previously served as a director of Forschner from June 1987 to June 1991, and as
Chairman of Forschner's Board of Directors from January 1990 to October 1990 and
served in senior executive capacities with the Interpublic Group of Companies,
Inc., a leading marketing and communications organization.
Stanley G. Mortimer III, Executive Vice President and a Director of
Forschner, has served Forschner in a variety of capacities since September 1984.
Mr. Mortimer was elected as a director in December 1994. He had previously
served as a director from June 1987 to June 1994.
Thomas M. Lupinski, Senior Vice President, Controller, Secretary and
Treasurer of Forschner, has been Vice President of Forschner for more than five
years. He served as Chief Financial Officer from 1990 to March 1994. Prior to
joining Forschner, Mr. Lupinski was Finance Manager for The Revlon Health Care
Group from 1982 to 1986 and was with Arthur Andersen & Co., from 1976 through
1982.
David J. Parcells, Vice President - Operations, joined Forschner in
December 1992. Mr. Parcells was employed by Arthur Andersen & Co. as a Senior
Manager - Audit and Business Advisory Practice from 1989 through 1992 and as an
Audit Manager from 1986 to 1989.
Michael J. Belleveau, Vice President - Sales, was elected to the office
of Vice President in June 1994. Mr. Belleveau has served Forschner in various
positions since 1991. Prior to that Mr. Belleveau was a regional sales manager
for Cartier, Inc., a manufacturer and marketer of watches and luxury goods.
Leslie H. Green, Vice President, was elected to the office of Vice
President in December 1995. Ms. Green has served Forschner in various positions
since January, 1991.
Jerald J. Rinder, Vice President, was elected to the office of Vice
President in February, 1996. From 1994 through 1995 Mr Rinder was Executive Vice
President of Pringle of Scotland USA, an
- 18 -
apparel company. From 1993 to 1994 Mr. Rinder was Vice President -
Sales/Marketing of Walkover Shoe Co. and from 1991 through 1993 was Vice
President - Sales of Stride Rite Corp.
Robert L. Topazio, Vice President, was elected to the office of Vice
President in February, 1996. Mr. Topazio has served Forschner in various
positions since September, 1992. From 1991 to 1993 Mr. Topazio was Vice
President of Cuisine de France, Ltd., a marketer of consumer cutlery which was
purchased by the Company in 1992. Prior to that Mr. Topazio was National Sales
Manager for J.A. Henckels.
Douglas M. Rumbough, Vice President - Corporate Markets, was elected to
the office of Vice President in June 1992. Mr. Rumbough has served Forschner in
various positions since 1981.
A. Clinton Allen, a Director of Forschner, is Chairman of A. C. Allen &
Co., a Massachusetts based consulting firm. Mr. Allen also serves as Vice
Chairman and a director of Psychemedics Corporation, a company that provides
testing services for the detection of abused substances through an analysis of
hair samples, and of Dewolfe Companies, Inc., a real estate company, and as a
director of SweetWater and Tigera.
Thomas A. Barron, a Director of Forschner, is an author and has been
Chairman of Evergreen Management Corp., a private investment firm since January,
1990. From November, 1983 through November 1989, Mr. Barron was President and
Chief Operating Officer and a director of Prospect. From 1988 through January,
1990, Mr. Barron served as Chairman of the Board of Forschner. Mr. Barron also
serves as a director of Illinois Central Corporation, a railroad corporation,
Illinois Central Railroad Company, and SweetWater. Mr. Barron has served as a
Trustee of Princeton University.
Herbert M. Friedman, a Director of Forschner, is a partner in the law
firm of Zimet, Haines, Friedman & Kaplan, where he has been a member since 1967.
Zimet, Haines, Friedman & Kaplan acts as counsel to Forschner. Mr. Friedman is
also a director of Noel, Prospect, Victory, Tigera and Victorinox - Swiss Army
Knife Foundation.
Vincent D. Farrell, Jr., a Director of Forschner, has been a Managing
Director of the investment management firm of Spears, Benzak, Solomon & Farrell,
Inc., ("Spears, Benzak") since 1982. Mr. Farrell is a director of Noel.
M. Leo Hart, a Director of Forschner, is President and Chief Executive
Officer of Brae, a privately held acquisition company. Until December 13, 1995,
Mr. Hart was Co-Chairman of the Board and Chief Executive Officer of Forschner,
which capacity he had served in since February 1994. Previously, he was
Executive Vice President and a Director. Mr. Hart joined Forschner in October
1991. Prior to this, Mr. Hart spent the previous 15 years in senior sales and
marketing positions in the hospitality industry, serving as Senior Vice
President of Marketing for The Ritz-Carlton Hotel Company from 1987 to 1991 and
before that as Vice President - Sales and Marketing for Fairmont Hotels from
1983 to 1987. Until 1991, he was the North American Chairperson of Leading
Hotels of the World, a hotel marketing association. Prior to his career in
sales, Mr. Hart played professional football with the NFL's Atlanta Falcons and
Buffalo Bills. Mr. Hart is also a director of Victory and a director of
Victorinox - Swiss Army Knife Foundation, a charitable organization.
James W. Kennedy, a Director of Forschner, is President of Lahinch
Group, Inc., a start-up company proposing to engage in the golf award and
apparel business. Until December 13, 1995, Mr. Kennedy was Co-Chairman of the
Board and Chief Executive Officer of Forschner, which capacity he had served in
since February 1994. Previously, he was President of Forschner, a position he
had held
- 19 -
since 1988. Prior to 1988, Mr. Kennedy was Senior Vice President of Forschner
and had served in various sales and marketing positions with Forschner since
1975. Mr. Kennedy has served on committees for the Specialty Advertising
Association International, the National Restaurant Association, the American
Meat Institute, the Sporting Goods Manufacturers Association and the American
Association of Exporters and Importers.
Keith R. Lively, a Director of Forschner, is a private investor and,
since January 1995 through December, 1995, was a consultant to Forschner. From
1988 through September 1994, Mr. Lively was the President, Chief Executive
Officer and a Director of The Famous Amos Chocolate Chip Cookie Corporation.
From September 1992 through September 1994, Mr. Lively was also Senior Vice
President, a member of the Executive Committee and a Director of President
Baking Company, which purchased The Famous Amos Chocolate Cookie Corporation in
September 1992.
Lindsay Marx, a Director of Forschner is a private investor. From
November 1992 to January 1994, she was a production assistant at Iron Mountain
Productions, a dramatic production company. Ms. Marx was an assistant to the
director at the Paper Mill Playhouse in 1992 and, from September 1989 to March
1992, an artistic assistant at The Body Politic, also a dramatic production
company. Ms. Marx graduated from Middlebury College in 1987.
Ms. Marx, is the daughter of Louis Marx, Jr.
Eric M. Reynolds, a Director of Forschner, is President, Chief Executive
Officer and a director of SweetWater, a position he has held since January,
1993. Previously, from 1987 through 1990, Mr. Reynolds served as a marketing
consultant to various companies including W.L. Gore & Associates and Marmot
Mountain Works, Ltd., a company founded by Mr. Reynolds in 1974 that is in the
business of designing, manufacturing and marketing mountaineering, backpacking
and ski outerwear products.
John Spencer, a Director of Forschner, holds the African Studies
Professorship at Middlebury College where he has served as a member of the
faculty since 1974. Mr. Spencer has also served as Dean of Middlebury College
and Chairman of its History Department. Mr. Spencer is Vice-Chairman of the
African American Institute, a Trustee of the Cape of Good Hope Foundation and of
the University of Capetown Fund, Inc. and a director of Victorinox - Swiss Army
Knife Foundation.
John V. Tunney, a Director of Forschner, is currently Chairman of the
Board of Cloverleaf Group, Inc. and a general partner of Sun Valley Ventures, a
partnership engaged in venture capital and leveraged buyout activities. From
1971 to 1977 Mr. Tunney served as a United States Senator from the state of
California and as a Member of the United States House of Representatives from
1965 to 1971. Mr. Tunney is also a director of Prospect, Illinois Central
Corporation, Illinois Central Railroad Company, Foamex International, Inc., a
foam manufacturer, and Garnet Resources Corporation.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that except for one late filing
of a Form 4 by Mr. Eric Reynolds pertaining to a purchase of 1,000 shares of
Common Stock, during the year ended December 31, 1995 all filing requirements
applicable to the Company's officers, directors, and greater than ten-percent
beneficial owners were complied with.
- 20 -
Item 11. Executive Compensation
Summary Compensation Table
The Summary Compensation Table below sets forth individual compensation
information of the Chief Executive Officer and the four other most highly paid
executive officers of the Company for services rendered in all capacities during
the fiscal years ended December 31, 1995, 1994 and 1993.
Annual Compensation Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary Bonus sation Award SARS Payouts sation
------------------ ---- ------ ----- ------ ----- ---- ------- ------
J. Merrick Taggart 1995 33,654 - - - 100,000 - -
President1 1994 - - - - - - -
1993 - - - - - - -
James W. Kennedy 1995 240,000 300,000 - - 25,000 - 6,941 (3)
Co-Chairman and 1994 250,000 125,000 - - 50,000 - 13,523 (4)
Chief 1993 226,065 75,000 - - 25,000 - 12,681 (5)
Executive Officer(2)
M. Leo Hart 1995 210,000 75,000 - - 25,000 - 1,432 (7)
Co-Chairman and 1994 220,000 125,000 - - 25,000 - 2,332 (8)
Chief 1993 211,115 75,000 - - 50,000 - 2,111 (9)
Executive Officer(6)
Thomas D. Cunningham 1995 210,000 10,000 - - 25,000 - 4,400 (10)
Executive Vice President 1994 174,308 100,000 - - 50,000 - 2,846 (11)
and Chief Financial 1993 - - - - - - -
Officer
Stanley G. Mortimer III 1995 210,000 5,000 - - 25,000 - 8,584 (12)
Executive Vice President 1994 220,000 100,000 - - - - 12,845 (13)
1993 210,961 75,000 - - 25,000 - 11,155 (14)
Harry R. Thompson 1995 200,000 15,000 - - 25,000 - 2,195 (15)
Managing Director 1994 - - - - - - -
1993 - - - - - - -
Leslie H. Green 1995 175,000 10,000 - - 10,000 - 3,796 (16)
Vice President 1994 175,000 45,000 - - - - 3,705 (17)
1993 170,000 40,000 - - 10,000 - 3,531 (18)
- -------------------
(1) Mr. Taggart was elected President on December 13, 1995.
- 21 -
(2) Mr. Kennedy resigned as Co-Chairman and Co-Chief Executive Officer
on December 13, 1995.
(3) Consists of $4,620 contributed by the Company to Mr. Kennedy's
account under the Company's 401K savings plan and $2,321 in benefit to Mr.
Kennedy of insurance premiums paid by the Company with respect to split dollar
life insurance for the benefit of Mr. Kennedy.
(4) Consists of $4,620 contributed by the Company to Mr. Kennedy's
account under the Company's 401K savings plan and $8,903 in benefit to Mr.
Kennedy of insurance premiums paid by the Company with respect to split dollar
life insurance for the benefit of Mr. Kennedy.
(5) Consists of $4,497 contributed by the Company to Mr. Kennedy's
account under the Company's 401K savings plan and $8,184 in benefit to Mr.
Kennedy of insurance premiums paid by the Company with respect to split dollar
life insurance for the benefit of Mr. Kennedy.
(6) Mr. Hart resigned as Co-Chairman and Co-Chief Executive Officer on
December 13, 1995.
(7) Consists of $1,432 in benefit to Mr. Hart of insurance premiums paid
by the Company with respect to split dollar life insurance for the benefit Mr.
Hart.
(8) Consists of $2,332 in benefit to Mr. Hart of insurance premiums paid
by the Company with respect to split dollar life insurance for the benefit of
Mr. Hart.
(9) Consists of $2,111 in benefit to Mr. Hart of insurance premiums paid
by the Company with respect to split dollar life insurance for the benefit of
Mr. Hart.
(10) Consists of $4,400 contributed by the Company to Mr. Cunningham's
account under the Company's 401K savings plan.
(11) Consists of $2,846 contributed by the Company to Mr. Cunningham's
account under the Company's 401K savings plan.
(12) Consists of $4,300 contributed by the Company to Mr. Mortimer's
account under the Company's 401K savings plan and $4,284 in benefit to Mr.
Mortimer of insurance premiums paid by the Company with respect to split dollar
life insurance for the benefit of Mr. Mortimer.
(13) Consists of $4,620 contributed by the Company to Mr. Mortimer's
account under the Company's 401K savings plan and $8,225 in benefit to Mr.
Mortimer of insurance premiums paid by the Company with respect to split dollar
life insurance for the benefit of Mr. Mortimer.
(14) Consists of $4,497 contributed by the Company to Mr. Mortimer's
account under the Company's 401K savings plan and $6,658 in benefit to Mr.
Mortimer of insurance premiums paid by the Company with respect to split dollar
life insurance for the benefit of Mr. Mortimer.
(15) Consists of $2,195 contributed by the Company to Mr. Thompson's
account under the Company's 401K savings plans.
(16) Consists of $3,796 contributed by the Company to Ms. Green's
account under the Company's 401K savings plan.
- 22 -
(17) Consists of $3,705 contributed by the Company to Ms. Green's
account under the Company's 401K savings plan.
(18) Consists of $3,531 contributed by the Company to Ms. Green's
account under the Company's 401K savings plan.
Option Grants in Last Fiscal Year
The following table sets forth, for each of the executive officers named
in the Summary Compensation Table, information regarding individual grants of
options made in the last fiscal year, and their potential realizable values.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options Granted Exercise or
Option to Employees in Base Price Expiration
Name Granted Fiscal Year(1) ($/Sh) Date 5% ($) 10% ($)
- ---- ------- ------- ------- ----- ------- -------
J. Merrick Taggart 100,000(2) 10.9% $12.50 12/13/05 $786,118 $1,992,178
James W. Kennedy 25,000 2.7% $12.875 1/26/05 $202,425 $512,986
M. Leo Hart 25,000 2.7% $12.875 1/26/05 $202,425 $512,986
Thomas D. Cunningham 25,000 2.7% $12.875 1/26/05 $202,425 $512,986
Stanley G. Mortimer III 25,000 2.7% $12.875 1/26/05 $202,425 $512,986
Harry R. Thompson 25,000 2.7% $12.875 2/16/05 $202,425 $512,986
Leslie H. Green 10,000 1.1% $12.875 1/26/05 $80,970 $205,194
-----------------------
(1) Based on 812,000 options granted plus 100,000 warrants.
(2) Consists of warrants to purchase Common Stock.
- 23 -
Option Exercises and Year-End Value Table
The following table sets forth option exercise activity in the last
fiscal year and fiscal year-end option values with respect to each of the
executive officers named in the Summary Compensation Table.
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option/SAR Value
- -----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End (#)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- -------------------------- ---------------- ------------ ------------- -------------
J. Merrick Taggart - - 25,000/75,000 $0/$0
James W. Kennedy - - 50,000/50,000 $5,469/$3,906
M. Leo Hart - - 56,250/43,750 $6,250/$3,125
Thomas D. Cunningham - - 31,250/43,750 $3,125/$3,125
Stanley G. Mortimer III - - 25,000/25,000 $2,344/$781
Harry R. Thompson - - 16,250/18,750 $71,250/$0
Leslie H. Green - - 20,000/10,000 $938/$312
Compensation of Directors
The Company compensates those of its directors who were not employees of
the Company in the amount of $10,000 annually plus $1,000 for attendance at each
meeting of the Board of Directors. The Chairmen of the Audit Committee, the
Stock Option and Compensation Committee and the Acquisition Committee of the
Board of Directors are each paid an additional annual fee of $10,000 in
recognition of the additional responsibilities and time commitments associated
with such positions.
In 1995, Louis Marx, Jr. and Stanley R. Rawn, Jr. were granted options
under the Company's 1994 Stock Option Plan to purchase 150,000 and 100,000
shares, respectively, of the Company's Common Stock at a price of $12.875 per
share, the market price of the Company's Common Stock when such options were
issued. On December 13, 1995 the options to purchase up to 150,000 shares
granted to Mr. Marx were voluntarily returned to the Company by Mr. Marx to
permit them to be reissued to others. Also on December 13, 1995, options to
purchase 150,000 shares of Common Stock under the 1994 Stock Option Plan were
granted to Mr. Peter W. Gilson at an exercise price of $12.50, the market price
of such shares on the date of grant.
- 24 -
In addition, the Company has purchased split dollar life insurance
policies in respect of each of Messrs. Louis Marx, Jr. and Stanley R. Rawn, Jr.
See "Certain Transactions".
Employment Agreement and Severance Agreement
The Company entered into an employment agreement dated as of January 2,
1996 with Mr. James W. Kennedy, a director of the Company and, until December
13, 1995, Co-Chairman of the Board and Chief Executive Officer of the Company.
The agreement provides that Mr. Kennedy shall be employed in an executive
capacity with the Company and shall be available to consult with and advise the
Company on such matters as might be requested by senior management of the
Company for at least eighty-five hours per month to assist on issues dealing
with the maintenance of corporate trademarks; corporate legal matters; and
strategic support relative to strategic relations with Victorinox Cutlery
Company, the Company's key supplier. Mr. Kennedy is to be paid a salary of
$140,000 per annum and, during 1996, a one time bonus of $300,000. The
agreement, which has a term of five years, also provides that following the
termination of the agreement Mr. Kennedy would be prohibited from competing,
with certain exceptions, with the business of the Company for a period of three
years.
In connection with the resignation of Mr. M. Leo Hart, a director of the
Company, from his position as Co-Chairman of the Board and Chief Executive
Officer of the Company, the Company paid Mr. Hart the sum of $75,000 and
accepted for surrender and cancellation all of Mr. Hart's outstanding stock
options to purchase Stock. To replace of such options, the Company has issued to
Mr. Hart new options covering the same number of shares and upon the same terms
and conditions except that the newly issued options were fully vested upon grant
and the exercise ability of such options is not contingent on Mr. Hart's
employment with the Company.
Pension Plan
Each employee of the Company at least twenty years of age,
becomes eligible to participate in the Company's Pension Trust (the "Pension
Trust") after completing two Years of Credited Service (as defined in the
Pension Trust). Monthly benefits at Normal Retirement Age, age sixty-five, are
computed as follows: Average Monthly Compensation (as defined below) multiplied
by 0.65% plus Average Monthly Compensation in excess of Social Security Covered
Compensation (as defined below) multiplied by 0.65%, such sum multiplied by
Years of Credited Service, not to exceed 35 years. Accrued benefits under the
prior formula used by the Company's Pension Trust are grandfathered as of
December 31, 1993 for Non-Highly Compensated Employees and as of December 31,
1988 for Highly Compensated Employees.
"Average Monthly Compensation" is defined as one-twelfth of the
highest five consecutive years of total compensation. Social Security Covered
Compensation is defined as the average of the Taxable Wage Base over the 35-year
period ending with the year of the Social Security Normal Retirement (ages 65 -
67, depending on year of birth).
Participants will receive reduced benefits on a life annuity
basis with continuation of benefits to their spouses after death unless an
optional form of benefit is selected. Preretirement death benefit coverage is
also provided. A participant is 100% vested in his accrued benefits, as defined
in the Pension Trust, upon such accrual. The Years of Credited Service as of
December 31, 1995 of each of the individuals named in the Cash Compensation
table herein are as follows:
- 25 -
J. Merrick Taggart................ 0 years
James W. Kennedy................. 20 years
M. Leo Hart....................... 4 years
Thomas D. Cunningham.............. 2 years
Stanley G. Mortimer III.......... 11 years
Harry R. Thompson................. 0 years
Leslie H. Green................... 5 years
The following table shows annual pension benefits under the
Pension Trust assuming retirement at age sixty-five in 1996, payable as a life
annuity, in various remuneration and years of employment classifications. Note
that the maximum allowable compensation for years beginning in 1994 is $150,000,
so remuneration in excess of that amount is not shown. Some grandfathering of
benefits earned at higher compensation levels is provided.
PENSION BENEFITS FOR 1995 RETIREES AT AGE 65
Years of Service
-----------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------- -- -- -- -- --
50,000 7,061 9,415 11,769 14,123 16,476
75,000 11,936 15,915 19,894 23,873 27,851
100,000 16,811 22,415 28,019 33,623 39,226
125,000 21,686 28,915 36,144 43,373 50,601
150,000 26,561 35,415 44,269 53,123 61,976
Compensation Committee Interlocks and Insider Participation
In 1995, the Compensation Committee was comprised of A. Clinton Allen,
John V. Tunney and John Spencer. None of these individuals is an officer or
employee of the Company or any of its subsidiaries.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Common Stock on March __, 1996, by each person or group known
by Forschner to own beneficially 5% or more of the outstanding Common Stock.
Except as otherwise noted, each person listed below has sole voting and
investment power with respect to the shares listed next to his or its name.
Number of
Name of Beneficial Owner Shares Percent owned(1)
- ------------------------ --------- ---------------
Louis Marx, Jr.
667 Madison Avenue
New York, NY 10021 3,022,222(2) 34.8%
Brae Group, Inc.
15710 John F. Kennedy Blvd.
Houston, TX 77032 2,998,200(3) 34.5%
- 26 -
Number of
Name of Beneficial Owner Shares Percent owned(1)
- ------------------------ --------- ---------------
Victorinox A.G.
CH-6438
Ibach-Schwyz
Switzerland 854,200 10.4%
Tweedy, Browne Company L.P.
52 Vanderbilt Avenue
New York, New York 10017 589,150(4) 7.2%
David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142 501,000(5) 6.1%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401 414,688(6) 5.07%
Smith Barney Holdings, Inc.
Travelers Group, Inc.
388 Greenwood Street
New York, NY 10013 412,000(7) 5.03%
- ------------------
(1) Based on 8,186,610 shares of Common Stock outstanding, not including
614,108 shares held as Treasury stock. Treated as outstanding for the purposes
of computing percentage ownership of each holder are shares issuable to such
holder upon exercise of Options and Warrants.
(2) Consists of 19,730 shares held directly by Mr. Marx, 4,292 shares
held by a trust for the benefit of Mr. Marx, 2,498,200 shares held by Brae
Group, Inc., which corporation Mr. Marx may be deemed to control, and 500,000
shares issuable upon the exercise of a stock option held by Brae Group, Inc.
(3) Includes 500,000 shares issuable upon the exercise of a stock option
held by Brae Group, Inc.
(4) According to a Schedule 13D filed February 29, 1996, consists of
shares held in the accounts of customers of Tweedy, Browne Company, L.P., a
broker-dealer.
(5) According to a Schedule 13G dated February 12, 1996, consists of
shares which David L. Babson & Co., Inc. beneficially owns by virtue of serving
as investment advisor.
(6) According to a Schedule 13G dated February 7, 1996, consists of
shares as to which Dimensional Fund Advisor shares power of disposition by
virtue of serving as investment advisor to its clients.
(7) According to a Schedule 13G dated February 1, 1996, consists of
shares held by Smith Barney Holdings, Inc., a wholly owned subsidiary of
Travelers Group, Inc.
- 27 -
The following table sets forth certain information concerning the
beneficial ownership of Common Stock on March __, 1996 by each director, each
officer named in the Summary Compensation Table herein and by all directors and
officers of Forschner as a group.
Number of
Name Shares Percent of Class(1)
---- --------- -----------------
J. Merrick Taggart 25,000(2) *
Thomas D. Cunningham 37,500(3) *
Stanley G. Mortimer III 32,262(4) *
Harry R. Thompson 22,500(5) *
Leslie H. Green 22,500(6) *
A. Clinton Allen 35,000(7) *
Thomas A. Barron 60,000(8) *
Vincent D. Farrell, Jr. 35,000(9) *
Herbert M. Friedman 15,368(10) *
Peter W. Gilson 37,500(11) *
M. Leo Hart 100,000(12) 1.2%
James W. Kennedy 75,429(13) *
Keith R. Lively -0- *
Lindsay Marx 25,000(14) *
Louis Marx, Jr. 3,022,222(15) 34.8%
Stanley R. Rawn, Jr. 142,711(16) 1.7%
Eric M. Reynolds 26,000(17) *
John Spencer 1,000 *
John V. Tunney -0- *
All officers and directors 3,802,304(18) 40.7%
as a group (23 persons)
- --------------------------
*Less than 1% of the Class.
(1) Based on 8,186,610 shares of Common Stock outstanding, not including
614,108 shares held as Treasury Stock. Treated as outstanding for the purpose of
computing the percentage ownership of each director and of all directors and
officers as a group are shares issuable to such individuals upon exercise of
options.
(2) Consists of 25,000 shares of Common Stock issuable upon exercise of
warrants held by Mr. Taggart.
(3) Consists of 37,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Cunningham.
(4) Includes 31,250 shares of Common Stock issuable upon exercise of
Options held by Mr. Mortimer.
(5) Consists of 22,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Thompson.
- 28 -
(6) Consists of 22,500 shares of Common Stock issuable upon exercise of
Options held by Ms. Green.
(7) Consists of 35,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Allen.
(8) Includes 25,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Barron.
(9) Consists of 35,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Farrell. Excludes shares beneficially owned by Spears,
Benzak, a general partnership in which Mr. Farrell has a 22% interest.
(10) Includes 12,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Friedman.
(11) Consists of 37,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Gilson.
(12) Consists of 100,000 shares of Common Stock issuable upon exercise
of Options held by Mr. Hart.
(13) Includes 56,250 shares of Common Stock issuable upon exercise of
Options held by Mr. Kennedy.
(14) Consists of 25,000 shares of Common Stock issuable upon exercise of
Options held by Ms. Marx.
(15) Consists of 19,730 shares of Common Stock held directly by Mr.
Marx, 4,292 shares held by a trust for the benefit of Mr. Marx, 2,498,200 shares
held by Brae Group, Inc., which corporation Mr. Marx may be deemed to control,
and 500,000 shares issuable upon exercise of options held by Brae Group, Inc.
(16) Includes 100,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Rawn.
(17) Includes 25,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Reynolds.
(18) Includes 1,128,750 shares of Common Stock issuable to directors and
officers upon exercise of Options and 25,000 shares of Common Stock issuable
upon exercise of warrants.
- 29 -
Item 13. Certain Relationships and Related Transactions
Messrs. Louis Marx, Jr., Chairman of the Company's Management Committee,
and a Director of the Company, and Stanley R. Rawn Jr., Senior Managing Director
and a Director of the Company, devoted considerable time and attention to the
affairs of the Company during 1995. During 1995 Messrs. Marx and Rawn were
principally compensated, through split dollar insurance on their lives, a method
which allows the Company to recover, without interest, all premiums paid on the
death of the insured and which has substantially lower earnings impact over the
years than would similar amounts paid as cash compensation. Specifically, the
Company has purchased split dollar life insurance payable on the death of Mr.
Marx, some of which is payable on the later to die of Mr. Marx and his wife, and
split dollar life insurance payable on the death of Mr. Rawn. Under these
arrangements the Company will pay approximately $2,492,000 over the course of
the next 14 years as premiums under the policies for Mr. Marx and approximately
$1,425,000 over the course of the next six years under the policy for Mr. Rawn
(in each case including amounts paid through the first fiscal quarter of 1996),
and will be reimbursed, without interest, for all of the premiums that it has
paid upon the death of the respective insured. The actual premiums to be paid
may be higher than estimated depending upon the performance of the insurance
company's investments and other factors. Pursuant to the terms of life insurance
agreements entered into with each of Messrs. Marx and Rawn, Forschner shall
continue to be obligated to pay these premiums during the insured's employment
with the Company and in the event of the termination of such employment for any
reason, unless the insured willfully and materially breaches the terms of a
consulting agreement between him and Forschner and such breach continues for 30
days after written notice. Under the terms of such consulting agreements, each
of Messrs. Marx and Rawn is to be engaged as a consultant immediately following
the termination of his employment with Forschner and, in such event, shall
receive such compensation as shall be fair under the circumstances. Mr. Marx has
been so engaged as a consultant to the Company since February 15, 1995, the date
on which he ceased to serve as Chairman of the Company's Executive Committee.
The consulting agreements may be terminated by Forschner upon thirty days
notice. In 1995, the Company paid an aggregate of $635,098 in premiums on the
policies pertaining to Mr. Marx (of which $105,000 pertained to 1994 premiums)
and $552,650 in premiums on the policy pertaining to Mr. Rawn (of which $237,500
pertained to 1994 premiums). There will be a small, negative earnings impact in
the early years of the policies on Messrs. Marx's and Rawn's lives, and an
increasingly positive impact on earnings in the later years.
In July 1994, Forschner entered into a Services Agreement with Brae
which beneficially owns 34.5% of the outstanding Common Stock and in which Louis
Marx, Jr., a Director of Forschner, has a controlling interest, and in which
Victorinox Cutlery Company ("Victorinox"), a key supplier and beneficial owner
of approximately 10% of the outstanding Common Stock, has a non-controlling
stock interest. Mr. M. Leo Hart, a director of Forschner, is Chief Executive
Officer of Brae. Under the Services Agreement, Brae is to provide various
services to Forschner for a period of four years relating to maintaining,
enhancing and expanding Forschner's relationship with Victorinox. In exchange
for these services, Brae received an option to purchase 500,000 shares of
Forschner's Common Stock at the then current market price of $10.75 per share.
The option is fully vested and can be exercised for ten years from the date of
the Services Agreement.
The Company loaned to Mr. James W. Kennedy, a Director of the Company, a
total of $87,500. The loan bore interest at the prime rate and was paid in full,
together with accrued interest, on January 3, 1996.
An existing Company policy authorizes Forschner to compensate, in the
form of a commission of up to 3% of net sales for up to three years,
non-employees for their direct role in introducing significant new customers to
the Company. In 1995 Forschner paid to Louis Marx III, a son of Louis
- 30 -
Marx, Jr. and a brother of Lindsay Marx, both Directors of the Company,
$107,533, representing one half of a 3% commission on net sales to Cyrk, Inc.
("Cyrk"), a customer introduced to Forschner by Mr. Marx.
Simmons Outdoor Corporation ("Simmons"), in which Forschner owned
655,000 shares of common stock (approximately 20% of the issued and outstanding
shares) until December 19, 1995, sells Victorinox Original Swiss Army Knives
purchased from Forschner to selected sporting goods distributors. In 1995,
Forschner's sales to Simmons were approximately $296,000. Forschner's 1995
purchases from Simmons of optical products for sale to Forschner's Corporate
Markets customers totaled $387,000 in 1995. Both sales and purchases of products
are on an arm's length basis. Herbert M. Friedman, a Director of Forschner, also
served on the Board of Directors of Simmons until December 19, 1995.
In June 1994, the Company received 75,299 newly issued shares of the
Series A Preferred Stock of Forschner Enterprises, Inc. (n/k/a Victory Capital
LLC) in exchange for all of the Company's shares of Tigera Group, Inc., a
publicly traded company. The Company currently holds approximately 20.3% of the
outstanding equity units of Victory. Louis Marx, Jr., a Director of Forschner,
is Co-Chairman and a director of Victory. Stanley R. Rawn, Jr., Senior Managing
Director and a Director of Forschner, and A. Clinton Allen, Herbert M. Friedman,
M. Leo Hart and Eric M. Reynolds, Directors of Forschner, also serve as
Victory's directors.
In 1995, Forschner paid $432,000 for legal services rendered by the law
firm of Zimet, Haines, Friedman & Kaplan, of which Mr. Herbert M. Friedman, a
Director of the Company, is a partner.
Keith R. Lively, a Director of the Company, served as a consultant to
the Company from January, 1995 to December 31, 1995, for a fee of $10,000 per
month, in respect of the Company's acquisition program and other matters.
Peter W. Gilson, Chairman of the Executive Committee and a Director of
the Company, is an employee of the Company and was compensated by the Company at
the rate of $150,000 per year in 1995.
It is anticipated that Lahinch Group, Inc., of which Mr. James W.
Kennedy, a director of Forschner, is president, director and a significant
stockholder, and of which Mr. Louis Marx, Jr. and Victorinox Cutlery Company are
investors, will purchase from Forschner products for resale to the golf oriented
channel of trade beginning in 1996.
During 1995, the Company purchased shares of common stock of SweetWater,
Inc. ("SweetWater"), a publicly traded company which manufactures and markets
portable water filtration systems, for the aggregate purchase price of
$1,837,000, raising the Company's percentage ownership of SweetWater to 38%. Mr.
Eric M. Reynolds, a director of Forschner, is the Chief Executive Officer of
SweetWater and Mr. Peter W. Gilson, Chairman of the Executive Committee, and
Messrs. A. Clinton Allen and Thomas A. Barron, directors of the Company, are
directors of SweetWater.
During 1995, the Company purchased 5,160 shares of common stock,
representing a 19% interest, of Omar Torres, Inc. ("Omar"), a privately held
company in the business of designing and marketing jewelry, at $100 per share
and purchased an 8% convertible note of Omar for $284,000. Victory then owned
approximately 69% Omar's outstanding stock. In March 1996 Brae, a shareholder of
Omar at the time of the Company's purchase, bought an additional 4,000 shares of
Omar at the same purchase price per share previously paid by the Company, thus
reducing the Company's and Victory's
- 31 -
percentage interest in Omar. Brae, which is controlled by Mr. Louis Marx, Jr., a
director of the Company, and in which Victorinox also holds an interest, is an
equity holder in Victory.
Victorinox Cutlery Company owns approximately 10% of the outstanding
Common Stock and is the supplier to the Company of Swiss Army Knives,
professional cutlery products and Victorinox Watches. During the year ended
December 31, 1995, Forschner made payments for Victorinox products in aggregate
amount of approximately $39,676,000.
The Forschner Group, Inc. Charitable Insurance Program
Forschner recognizes its responsibility to the communities in which its
products are sold and the importance of charitable organizations to the country
at large. The Company is also aware of the benefits to commercial good will
resulting from the proper discharge of its responsibilities. In order to further
these objectives, the Company instituted its Charitable Insurance Program. This
program allows Forschner to provide the maximum assistance to numerous charities
by utilizing tax provisions intended to encourage such activities, and to
eventually recover, without interest, all amounts expended.
Under the Company's Charitable Insurance Program (the "Program"),
adopted by the Company's Board of Directors in 1993, the Company will utilize
insurance on the lives of each of its directors and other designated persons
(the "Insured Directors") to fulfill charitable pledges to the Victorinox-Swiss
Army Knife Foundation (the "Foundation") and to charities recommended by the
Insured Directors. The Company previously purchased life insurance on one of the
Company's then Co-Chairmen and designated the Foundation as a beneficiary of a
portion of the proceeds, subject to the Company's right to revoke such
designation.
The Program enables the Company to make a meaningful commitment to the
Victorinox-Swiss Army Knife Foundation, as well as a broad range of charities
benefiting our communities. The Company anticipates that it will be able to make
substantial contributions in the future to these charities at a minimal cost to
the Company.
The Victorinox-Swiss Army Knife Foundation is a tax-exempt private
foundation, funded primarily by contributions from Forschner and Victorinox. It
was organized in December, 1992 for general charitable purposes, including the
improvement of the welfare of underprivileged children (and others) through the
encouragement of organized athletic activities, including those sports in which
an underprivileged child would not ordinarily participate. Louis Marx, Jr., a
director of the Company, is President and a director of the Foundation. Stanley
R. Rawn, Jr., Senior Managing Director and a director of the Company, and
Herbert M. Friedman, M. Leo Hart and John Spencer, directors of the Company, are
directors of the Foundation.
The Company is the owner and beneficiary of the policies, with the right
to borrow against them, and will receive the proceeds upon the death of each
Insured. The proceeds will not be legally segregated from the Company's general
funds and will remain subject to claims of the Company's creditors. Upon the
death of an Insured Director, the Company will retain a share of the insurance
proceeds equal to the cumulative premiums paid by the Company for the policy on
that Insured Director's life. One half of the remaining amount will be used to
fulfill a pledge to the Foundation and the other half will be used to fulfill
pledges to tax-exempt charities recommended by Insured Directors and approved by
the Board.
- 32 -
Generally, the Company will be bound to continue to pay all premiums on
the policy for the life of the Insured or, in the case of Mr. Marx, as long as
he is an officer or Board member or agrees to serve as a consultant to the
Company.
Generally, there will be a small, negative impact on earnings through
1998, and an increasingly positive impact on earnings after 1998 as the cash
surrender value of the insurance increases.
If a director were to leave the Company prior to the time when the cash
surrender value of the policy exceeds the aggregate premiums, and the Company
received no further substantial benefit from his or her services, the obligation
to pay future premiums would result in a charge to earnings at the time he or
she left. The charge to earnings for 1995 with respect to directors who left the
Company in 1995 is insignificant.
The Company would not be entitled to a tax deduction, nor would the
Company realize income for regular income tax purposes, at the time the policy
is obtained nor as premiums are paid. Upon the death of the director (when the
policy matures and the insurance proceeds are paid) the Company would not
realize income for "regular" income tax purposes, but the Company might be
subject to alternative minimum tax ("AMT") on a portion of the receipts from the
policy. Upon the making of the cash contribution following the death of the
insured director, the Company would be entitled to a deduction. Since the
Company is entitled to claim as charitable deductions only 10% of its taxable
income in any year, the extent of the utilization of this deduction would depend
upon income. These deductions may be carried forward for a period of five years.
- 33 -
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, 1995 and 1994 F-2 to F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 F-5 to F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-8 to F-24
(2) Schedule --
Schedule II -- Valuation and Qualifying Accounts for the Years
Ended December 31, 1995, 1994 and 1993 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.
- 34 -
(3) Exhibits.
Exhibit Title Exhibit No.
------------- -----------
(2) Not Applicable
(3) (A) Articles of Incorporation, as amended, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1993. *
(B) By-laws, as amended. (3)-1
(4) Instruments defining the rights of security holders, including indentures:
(A) Excerpts from Certificate of Incorporation, as amended, incorporated
by reference to Exhibit 3(a) hereto. *
(B) Excerpts from By-Laws, as amended, incorporated by reference to the
Exhibits from Annual Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(9) Not Applicable.
(10) Material Contracts
(A) Employment Agreement dated as of September 15, 1983 between Forschner
and Michael M. Weatherly, incorporated by reference to the Exhibits
to Registration Statement on Form S-18, No. 2-87357-B. *
(B) 1983 Stock Option Plan, incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended December 31,
1990. *
(C) Letter Agreement dated December 12, 1983 between Victorinox
Cutlery Company and R.H. Forschner Co., Inc., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. *
(D) 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. *
(E) 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. *
(F) Letter Agreement dated August 24, 1988 between The Forschner Group,
Inc. and Recta S.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended December 31,
1994. *
- 35 -
(G) Mutual Agreement dated October 25, 1988 between Victorinox Cutlery
Co. 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. *
(H) Letter Agreement dated June 12, 1989 between Victorinox Cutlery Co.
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, 1989. *
(I) Agreement to Lease dated June 14, 1990 between The Forschner Group,
Inc. and Petran Trap Falls Associates, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1990. *
(J) Security agreement dated January 31, 1991 between The Forschner
Group, Inc. and Connecticut National Bank, incorporated by reference
to the Exhibits to Annual Report on Form 10-K for the fiscal year
ended December 31, 1989. *
(K) Security agreement dated January 31, 1991 between Swiss Army Brands
Ltd. and Connecticut National Bank, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1989. *
(L) Security agreement dated January 31, 1991 between Victorinox of
Switzerland, Ltd. and Connecticut National Bank, incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989. *
(M) Security agreement dated January 31, 1991 between Excelsior
Advertising, Inc. and Connecticut National Bank, incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989. *
(N) Agreement of guarantee and suretyship dated January 31, 1991 by Swiss
Army Brands Ltd. in favor of Connecticut National Bank, incorporated
by reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989. *
(O) Agreement of guarantee and suretyship dated January 31, 1991 by
Victorinox of Switzerland, Ltd. in favor of Connecticut National
Bank, incorporated by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended December 31, 1989. *
(P) Agreement of guarantee and suretyship dated January 31, 1991 by
Excelsior Advertising Inc. in favor of Connecticut National Bank,
incorporated by reference to the Exhibits to Annual Report on Form
10-K for the fiscal year ended December 31, 1989. *
(Q) 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.,
- 36 -
incorporated by reference to the Exhibits to Annual Report on Form
10-K for the fiscal year ended December 31, 1992. *
(R) Amended and Restated Loan Agreement dated June 18, 1992 between The
Forschner Group, Inc. and The Connecticut National Bank (now known as
Shawmut Bank Connecticut, N.A.), incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(S) Letter agreement dated June 18, 1992 between The Forschner Group,
Inc. and The Connecticut National Bank, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(T) License Agreement dated June 30, 1992 between The Forschner Group,
Inc. and Precise Imports Corporation, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(U) Letter agreement dated November 11, 1992 between The Forschner Group,
Inc. and Michael M. Weatherly, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(V) 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. *
(W) License Agreement dated as of January 1, 1993 between Cuisine de
France Limited and Coutel 'Innov, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the fiscal year
ended December 31, 1992. *
(X) 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. *
(Y) Stock Purchase Agreement dated May 17, 1993 between The Forschner
Group, Inc. and K.P.A., Inc. (now known as SweetWater, Inc.),
incorporated by reference to the Exhibits to Registration Statement
on Form S-1, No. 33- 71036, filed by SweetWater, Inc. *
(Z) 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. *
(AA) First Modification to Amended and Restated Loan Agreement dated as of
August 13, 1993 between The Forschner Group, Inc. and Shawmut Bank
Connecticut, N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended December 31,
1993. *
(BB) Second Modification to Amended and Restated Loan Agreement dated as
of February 17, 1994 between The Forschner Group, Inc. and Shawmut
Bank
- 37 -
Connecticut, N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended December 31,
1993. *
(CC) Commercial Promissory Note dated February 17, 1994 of The Forschner
Group, Inc. in the principal amount of $15,000,000, incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993. *
(DD) 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. *
(EE) License Agreement dated as of July 1, 1993 between Cuisine de
France Limited and Coutel 'Innov, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993. *
(FF) 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. *
(GG) 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. *
(HH) 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. *
(II) 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. *
(JJ) 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. *
(KK) 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. *
(LL) 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
- 38 -
Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994. *
(MM) 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. *
(NN) Letter Agreement dated June 9, 1994 between The Forschner Group, Inc.
and Forschner Enterprises, Inc. relating to the purchase by Forschner
Enterprises, Inc. of shares of Tigera Group, Inc., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. *
(OO) Third Modification to Amended and Restated Loan Agreement dated as of
September 30, 1994 between The Forschner Group, Inc. and Shawmut Bank
Connecticut, N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended December 31,
1994. *
(PP) First Amendment to Lease dated June 16, 1994 between The Forschner
Group, Inc. and Petran Trap Falls Associates, incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. *
(QQ) Restricted Stock Award Agreement dated as of December 12, 1994
between The Forschner Group, Inc. 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, 1994. *
(RR) 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. *
(SS) Agreement dated June 30, 1995 between The Forschner Group, Inc. and
Bill- Mar Specialty Company, Inc., incorporated by reference to the
Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995. *
(TT) Agreement dated October 6, 1995 between The Forschner Group, Inc. and
James W. Kennedy, incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1995. *
(UU) Letter agreement dated February 15, 1995 between The Forschner Group,
Inc. and Harry Thompson, incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1995. *
(VV) Letter agreement dated October 25, 1995 between The Forschner Group,
Inc. and Harry Thompson, incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1995. *
- 39 -
(WW) Employment agreement dated as of January 2, 1996 between The
Forschner Group, Inc. and James W. Kennedy. (10)-1
(XX) Warrant dated as of December 13, 1995 between The Forschner Group,
Inc. and J. Merrick Taggart. (10)-2
(YY) Letter Agreement dated December 18, 1995 between The Forschner Group,
Inc. and Victorinox Cutlery Company. (10)-3
(11) Statement re computation of per share earnings is not required because
the relevant computations can be clearly determined from the material
contained in the financial statements included herein.
(12) Not applicable.
(13) Not applicable.
(16) Not Applicable.
(18) Not Applicable.
(21) Subsidiaries of Registrant. 21
(22) Not Applicable.
(23) Consents of experts and counsel: Consent of Arthur Andersen LLP. 23
(27) Not Applicable.
(28) Not Applicable.
(99) Not Applicable.
- ----------------------
* Incorporated by reference
No Current Reports on Form 8-K were filed during the fiscal quarter
ending December 31, 1995.
- 40 -
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.
THE FORSCHNER GROUP, INC.
(Registrant)
By /s/ J. Merrick Taggart
----------------------
J. Merrick Taggart
President
Date: March 27, 1996
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/ Thomas D. Cunningham March 27, 1996
- -----------------------------------------
Thomas D. Cunningham
Chief Financial Officer
and a Director
/s/ Thomas M. Lupinski March 27, 1996
- -----------------------------------------
Thomas M. Lupinski
Chief Accounting Officer
/s/ A. Clinton Allen March 27, 1996
- -----------------------------------------
A. Clinton Allen
Director
/s/ Thomas A. Barron March 27, 1996
- -----------------------------------------
Thomas A. Barron
Director
- 41 -
March , 1996
- -----------------------------------------
Vincent D. Farrell, Jr.
Director
/s/ Herbert M. Friedman March 27, 1996
- -----------------------------------------
Herbert M. Friedman
Director
/s/ Peter W. Gilson March 27, 1996
- -----------------------------------------
Peter W. Gilson
Director
/s/ M. Leo Hart March 27, 1996
- -----------------------------------------
M. Leo Hart
Director
/s/ James W. Kennedy March 27, 1996
- -----------------------------------------
James W. Kennedy
Director
/s/ Keith R. Lively March 27, 1996
- -----------------------------------------
Keith R. Lively
Director
/s/ Lindsay Marx March 27, 1996
- -----------------------------------------
Lindsay Marx
Director
/s/ Louis Marx, Jr. March 27, 1996
- -----------------------------------------
Louis Marx, Jr.
Director
- 42 -
/s/ Stanley G. Mortimer III March 27, 1996
- -----------------------------------------
Stanley G. Mortimer III
Director
/s/ Stanley R. Rawn, Jr. March 27, 1996
- -----------------------------------------
Stanley R. Rawn, Jr.
Director
/s/ Eric M. Reynolds March 27, 1996
- -----------------------------------------
Eric M. Reynolds
Director
/s/ John Spencer March 27, 1996
- -----------------------------------------
John Spencer
Director
/s/ John V. Tunney March 27, 1996
- -----------------------------------------
John V. Tunney
Director
- 43 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE FORSCHNER GROUP, INC.:
We have audited the accompanying consolidated balance sheets of The Forschner
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 The Forschner Group, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, effective January 1, 1993,
the Company changed its method of accounting for income taxes.
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 the 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 ARTHUR ANDERSEN LLP
February 5, 1996
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
1995 1994
------------------------------------
Current assets
Cash and short-term investments $608,757 $18,019,797
Accounts receivable, less
allowance for doubtful accounts
of $975,000 and $755,000, 31,970,449 29,606,328
respectively
Inventories 36,733,146 26,932,105
Deferred income tax benefits 2,395,858 2,467,440
Prepaid and other 2,647,121 1,615,273
------------ ------------
Total current assets 74,355,331 78,640,943
------------ ------------
Deferred income tax benefits
771,371 56,634
Property, plant and equipment, net 4,105,865 4,227,658
Investments in preferred stock, at cost 7,002,990 7,002,990
Investments in common stock and note 2,591,415 4,463,080
receivable of unconsolidated affiliates
Foreign distribution rights, net of
accumulated amortization of $1,843,812
and $1,165,129, respectively 4,900,396 5,579,079
Other assets, net of accumulated
amortization of $3,166,339 and
$2,159,756, respectively 7,502,884 5,737,337
------------ ------------
TOTAL ASSETS
$101,230,252 $105,707,721
============== ============
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
1995 1994
-------------------- ------------
Current liabilities
Accounts payable $6,479,200 $14,057,507
Accrued liabilities 8,697,994 8,651,738
Income taxes payable 1,114,389 1,223,193
------------ ------------
Total current liabilities 16,291,583 23,932,438
------------ ------------
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.10 per
share: shares authorized - - -
2,000,000; no shares issued
Common stock, par value $.10 per
share: shares authorized -
12,000,000; shares issued -
8,800,718 and 8,796,968, respectively 880,072 879,697
Additional paid-in capital 45,897,740 45,866,814
Foreign currency translation adjustment (9,216) (28,085)
Retained earnings 43,283,540 40,170,324
------------ ------------
90,052,136 86,888,750
Less-cost of common stock in
treasury; 614,108 shares (5,113,467) (5,113,467)
------------ ------------
Total stockholders' equity 84,938,669 81,775,283
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,230,252 $105,707,721
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993
------------ -------------- --------------
NET SALES $126,694,786 $144,437,320 $102,543,224
Cost of sales 82,430,435 88,633,762 60,516,258
------------ ------------ ------------
GROSS PROFIT 44,264,351 55,803,558 42,026,966
Selling, general and administrative
expenses before special charitable
contribution 40,265,716 38,792,909 30,753,401
Special charitable contribution
- 1,500,000 -
------------ ------------ ------------
Total selling, general and
administrative expenses 40,265,716
40,292,909 30,753,401
OPERATING INCOME 3,998,635 15,510,649 11,273,565
Interest expense (216,937) (27,674) (25,180)
Interest income 556,631 391,387 176,960
Gain on sale of investments 1,771,456 36,720 -
Equity interest in unconsolidated affiliates (548,200) - -
Other income (expense), net
74,276 81,543 99,873
------------ ------------ ------------
Total interest and other income, net 1,637,226 481,976 251,653
------------ ------------ ------------
Income before income taxes
and cumulative effect of
accounting change 5,635,861 15,992,625 11,525,218
Income tax provision 2,522,645 6,632,895 4,221,320
------------ ------------ ------------
Income before cumulative effect
of accounting change 3,113,216 9,359,730 7,303,898
Cumulative effect of accounting
change for income taxes -- -- 220,000
------------ ------------ ------------
NET INCOME $3,113,216 $9,359,730 $7,523,898
============ ============ ============
EARNINGS PER SHARE:
Income per share before cumulative
effect of accounting change $0.38 $1.16 $1.04
Cumulative effect per share of
accounting change for income taxes
- - 0.03
------------ ------------ ------------
Net income $0.38 $1.16 $1.07
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,235,849 8,061,846 7,053,107
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Common Stock Foreign
Par Value $.10 Additional Currency
----------------------------- Paid-In Translation Retained Treasury
Shares Amount Capital Adjustment Earnings Stock
----------------------------- ---------- ----------- -------- --------
BALANCE
DECEMBER 31, 1992 7,110,951 $711,095 $24,620,407 ($2,082) $23,286,696 ($5,577,758)
Net income - - - - 7,523,898 -
Stock options exercised 492,194 49,220 5,272,993 - - -
Issuance of common stock
from treasury - - 125,975 - - 158,400
Issuance of common stock 45,823 4,582 751,497 - -
Issuance of warrant for - -
Distribution Rights - - 3,750,000 - - -
Foreign currency
translation adjustment - - - - - -
Purchase of 3,297 shares
of common stock - - - (4,747) - (52,752)
--------- -------- ----------- ------- ----------- -----------
BALANCE
DECEMBER 31, 1993 7,648,968 $764,897 $34,520,872 ($6,829) $30,810,594 ($5,472,110)
Net income
Stock options and - - - - 9,359,730 -
warrant exercised 1,111,000 111,100 10,467,657 - -
Stock grant 37,000 3,700 486,925 - - -
Issuance of common stock
from treasury 391,360 - - 358,643
Foreign currency - - (21,256) - -
translation adjustment
--------- -------- ----------- ------- ----------- -----------
BALANCE
DECEMBER 31, 1994 8,796,968 $879,697 $45,866,814 ($28,085) $40,170,324 ($5,113,467)
========= ======== =========== ======== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
Common Stock Foreign
Par Value $.10 Additional Currency
----------------------------- Paid-In Translation Retained Treasury
Shares Amount Capital Adjustment Earnings Stock
----------------------------- ---------- ----------- -------- ---------
BALANCE
DECEMBER 31, 1994 8,796,968 $879,697 $45,866,814 ($28,085) $40,170,324 ($5,113,467)
Net income - - - - 3,113,216 -
Stock options exercised 3,750 375 30,926 - - -
Foreign currency
translation adjustment - - - 18,869 - -
--------- --------- --------- --------------- ----------- ------------
BALANCE
DECEMBER 31, 1995 8,800,718 $880,072 $45,897,740 ($9,216) $43,283,540 ($5,113,467)
========= ======== =========== ======= =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
---------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,113,216 $9,359,730 $7,523,898
Adjustments to reconcile net income to cash
provided from (used for) operating activities:
Cumulative effect of accounting change - - (220,000)
Depreciation and amortization 3,249,376 3,207,294 2,524,742
Deferred income taxes (643,155) (1,644,567) 94,423
Treasury shares contributed to charitable - 750,003 -
foundation - 303,125 -
Stock award 548,200 - -
Equity interest in unconsolidated affiliates 8,788 (9,030) -
(Gain) loss on sales of property, plant & (1,771,456) (36,720) -
equipment -------------- ---------------- ---------
(Gain) on sale of investments 4,504,969 11,929,835 9,923,063
CHANGES IN OTHER CURRENT ASSETS AND LIABILITIES:
Accounts receivable (2,329,783) (6,105,787) (6,911,964)
Inventories (9,741,351) (6,281,294) (2,476,354)
Prepaid and other (1,144,356) 3,020,220 (3,311,157)
Accounts payable (7,580,883) 2,765,024 6,383,575
Accrued liabilities 44,598 2,702,523 893,834
Income taxes payable (108,804) 823,193 4,585
---------------- --------------- ----------------
NET CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES (16,355,610) 8,853,714 4,505,582
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,430,352) (1,676,477) (2,769,013)
Proceeds from sales of property, plant & equipment 21,500 22,412 4,200
Disposition of property, plant & equipment - - 1,213,538
Additions to other assets (2,814,301) (2,205,205) (2,204,800)
Investments in preferred stock - (6,250,000) (2,016,500)
Investments in common stock (3,709,546) - (2,784,260)
Proceeds from note receivable - 186,120 43,509
Proceeds from sale of investments 6,822,282 377,490 -
-------------- -------------- -------------
NET CASH (USED FOR) INVESTING ACTIVITIES (1,110,417) (9,545,660) (8,513,326)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to acquire treasury stock - - (52,752)
Proceeds from exercise of stock options and 31,301 10,766,257 5,322,213
warrant ---------------- -------------- ---------------
Net cash provided from financing activities 31,301 10,766,257 5,269,461
---------------- -------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 23,686 109,638 (42,012)
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS (17,411,040) 10,183,949 1,219,705
Cash and short-term investments, beginning of 18,019,797 7,835,848 6,616,143
period -------------- -------------- --------------
Cash and short-term investments, end of period $ 608,757 $18,019,797 $ 7,835,848
=============== ============= =============
CASH PAID DURING THE PERIOD:
Interest $ 251,637 $ 27,674 $ 25,180
=============== =============== ===============
Income taxes $ 3,428,792 $ 6,883,242 $ 3,068,910
============== ============== =============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) NATURE OF BUSINESS
The Forschner Group, Inc. ("Forschner" 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 cutlery and Victorinox
watches. Forschner also markets its own line of Swiss Army Brand
Watches and other high quality Swiss made products under its
Swiss Army Brand worldwide. Forschner's cutlery line, which also
includes imported products from Germany, England, France and
Brazil, is sold primarily to the food processing and service
industries. Forschner's wholly-owned subsidiary, Cuisine de
France Limited, imports and distributes high quality French made
consumer cutlery under the Cuisine de France Sabatier brand.
Forschner has only one business segment - the importation and
distribution of cutlery, knives, watches and other consumer
products. Approximately 6% and 25% of Forschner's revenues for
the years ended December 31, 1995 and 1994, respectively,
resulted from participation in two special promotional programs
with one customer. No programs currently are scheduled with this
customer for 1996. Foreign operations represented 11%, 1% and 13%
of sales, assets and net income in 1995, respectively. Included
in the Company's balance sheet at December 31, 1995 are net
assets of $689,000 relating to the Company's foreign operations.
Foreign operations were less than 10% of sales, assets and net
income in 1994 and 1993.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant
intercompany transactions have been eliminated.
BASIS OF ACCOUNTING
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. The
Company, from time to time, enters into foreign currency forward
contracts and other currency trading arrangements to hedge
specific
F-8
foreign currency inventory purchase commitments. Gains and losses
on these contracts are deferred and recognized in cost of sales
when the related inventory is sold.
CASH AND SHORT-TERM INVESTMENTS
Excess cash balances are invested primarily in U.S. treasury
bills and other U.S. government agency securities, which, as of
December 31, 1995 and 1994, comprised $0 and $17,188,000 of the
balance of cash and short-term investments, respectively.
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, 1995 and 1994, the balance at
which inventories are stated would have been $2,746,000 and
$2,407,000 higher, respectively. Foreign inventories are valued
at the lower of cost or market determined by the FIFO method.
Inventories primarily consist of finished goods and packaging
material.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Major
improvements which 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,
1995 1994
------ ------
Leasehold improvements $ 818,446 $ 658,842
Equipment 6,199,914 5,189,298
Furniture & fixtures 1,473,188 1,256,462
---------- ---------
8,491,548 7,104,602
Accumulated depreciation (4,385,683) (2,876,944)
----------- -----------
$4,105,865 $4,227,658
=========== ==========
Depreciation is computed principally by use of the straight-line
method based on the following estimated useful lives:
Years
-----
Equipment 3 to 10
Furniture and fixtures 7 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, 1995, 1994, and 1993, the total
provisions for depreciation and amortization of property, plant
and equipment were approximately $1,521,000, $1,273,000 and
$1,072,000, respectively.
INVESTMENTS
Investments in common stock, in which the Company owns 20% to
50%, are being accounted for under the equity method, with
Forschner recording its proportional share of net income or
losses of these companies and amortization of goodwill related to
the
F-9
acquisition of the two investments. These amounts equalled losses
of $548,200 for 1995. The accompanying balance sheets as of
December 31, 1994 reflect adjustments necessary to show
Forschner's investments in Simmons Outdoor Corporation and
SweetWater, Inc. under the equity method.
Investments in preferred stock and common stock of which the
Company owns less than 20%, are accounted for at cost. Since
these investments do not have a readily determinable fair value,
the valuation of these investments is subject to uncertainty.
EARNINGS PER SHARE
Net income per share has been computed based on the weighted
average number of shares outstanding during each year. For the
years ended December 31, 1995, 1994, and 1993, the computation
included 50,000, 230,000 and 443,000 shares, respectively,
issuable upon exercise of stock options and warrants after the
assumed repurchase of common shares with the related proceeds.
There is no difference between primary and fully diluted earnings
per share.
INCOME TAXES
Forschner adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes" in the first
quarter of 1993. SFAS No. 109 supersedes SFAS No. 96, the
accounting standard that the Company had previously followed. As
a result of adopting SFAS No. 109, the Company recorded a
$220,000, or $0.03 per share, increase to consolidated net
income. The increase in consolidated net income was recorded as a
cumulative effect of accounting change.
Under SFAS No. 109, 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. The
cumulative effect on deferred taxes of changes in the corporate
income tax rate is recognized as an adjustment to income tax
expense.
FOREIGN CURRENCY
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. 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 what extent to which
such hedging transactions will reduce the effect of adverse
currency fluctuations.
F-10
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's
financial statements to conform with the 1995 presentation.
NEWLY ISSUED ACCOUNTING STANDARDS
In March 1995, Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", was issued. The Company
plans to adopt SFAS No. 121 in 1996, and believes that this
accounting standard will not have a material effect on the
Company's financial position and its results of operations.
In October 1995, Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", was
issued. The Company plans to adopt SFAS No. 123 in 1996. The
Company currently does not plan to change its method of
accounting for stock-based compensation; however, SFAS No. 123
will require additional footnote disclosures relating to the
effect of using a fair value based method of accounting for
stock-based compensation cost.
(3) PRINCIPAL SUPPLIERS
Forschner imports for resale all of its Swiss Army Knives and
certain of its other cutlery products from a principal supplier,
Victorinox Cutlery Company ("Victorinox"), a Swiss company.
Effective December 12, 1993, Forschner renewed a five-year
agreement (originally signed on December 12, 1983 and as amended)
with Victorinox which appoints Forschner as exclusive distributor
of Victorinox Original Swiss Army Knives and most of its other
cutlery products in the United States and gives Forschner
exclusive rights to use Victorinox trademarks and trade names in
the United States with respect to Swiss Army Knives and cutlery.
The agreement remains in effect as long as Forschner 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. Due to
high 1992 year-end inventory levels, with written concurrence of
Victorinox, Forschner reduced 1993 purchases to a level that was
2.3% below the minimum requirement of Swiss Army Knives. In 1995,
Victorinox agreed to reduce the 1996 minimum purchase
requirements on knives to 75% of the maximum amount of purchases
in any preceding year. The Company purchased the required minimum
during 1995 and 1994, and, based upon the current projections,
management believes that the Company will purchase the required
minimum during 1996. In 1995 total payments to Victorinox were
$39,676,000. Pursuant to this agreement, Forschner must obtain
Victorinox's permission to sell new cutlery items. All of the
Swiss Army Knives and certain of the cutlery items that Forschner
sells in Canada and the Caribbean also are supplied by
Victorinox.
Foreign distribution rights with Victorinox are comprised of the
following:
F-11
Cost at December 31, Amortization
1995 1994 Period
------ ------ -------
Canadian distribution
rights (A) $3,483,064 $3,483,064 10 years
Caribbean & Victorinox Watch
distribution rights (B) 3,261,144 3,261,144 10 years
----------- ----------
6,744,208 6,744,208
Accumulated amortization (1,843,812) (1,165,129)
------------ -----------
$4,900,396 $5,579,079
========== ==========
(A) In April 1992, Forschner entered into an agreement with
Victorinox under which it received the exclusive distribution
right 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,
Forschner issued to Victorinox 277,066 shares of its common stock
from treasury. The rights received were awarded to Forschner for
a fixed term 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 upon expiration of the fixed term, Victorinox is required
to pay Forschner $3,500,000.
(B) On December 21, 1993, Forschner 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. Forschner 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. In exchange for the grant of these
rights and the stock acquired, Forschner issued to Victorinox a
five-year warrant to purchase 1,000,000 shares of common stock at
a $3.75 discount to the current market price on the date of
exercise. In April 1994, the discount from the current market
price was modified to $4.25 in exchange for Victorinox's
agreement to pay the exercise price immediately instead of after
one year as allowed by the original agreement. All of the shares
issued upon exercise of the warrant were subsequently sold to a
corporate shareholder of Forschner that is controlled by a
director of Forschner, in exchange for shares of the common stock
of that corporation. In addition, Forschner will pay Victorinox a
royalty of 1% of net sales of Victorinox Watches. The Caribbean
distribution rights are for a fixed term automatically renewable
in successive five-year periods unless either party notifies the
other at least six months prior to expiration of such period of
its intent not to renew. The term of Victorinox Watch
distribution rights in each territory coincides with the term in
that territory for Victorinox cutlery products.
The Company does not have any manufacturing facilities and
imports virtually all of its products from independent suppliers.
The Company's business is subject to certain risks related to its
arrangements with its foreign suppliers, including possible
restrictions on transfer of funds, the risk of imposition of
quotas on the amount of products which may be imported into the
United States (although no quota currently exists), maritime
union strikes and political instability. Although the Company has
a United States exclusive distributorship agreement with
Victorinox Cutlery Company ("Victorinox"), its principal
supplier, it does not have such contractual arrangements with its
other suppliers. The agreement with Victorinox provides for
certain minimum annual purchases of products by the Company, and
failure to achieve these
F-12
goals would result in Victorinox having the right to terminate
the agreement. Such a termination would have a material effect
upon the Company's operations. The agreement also provides that
the Company will not add non-Victorinox items to its line of
cutlery products without the prior agreement of Victorinox.
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 would probably be
unable to find an alternative source. Any 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.
Although 77% or $23,384,000 of total payments for watches and
watch parts in 1995 were made to a single watch supplier, which
is responsible for the final assembly of watch components
manufactured by several manufacturers, the Company believes that
alternate watch suppliers would be available, if necessary.
Furthermore, the Company believes that the loss of this supplier
of Swiss Army Brand Watches would not have a material adverse
effect on the Company's business.
(4) RELATED PARTY TRANSACTIONS
One of Forschner's directors is a partner in a law firm which
provides legal services to Forschner and its subsidiaries. For
the years ended December 31, 1995, 1994 and 1993, Forschner
incurred fees of $432,000, $588,000 and $540,000, respectively,
relating to these services. Of the 1994 fees, $176,000 were paid
on behalf of Forschner Enterprises and capitalized as part of
Forschner's investment therein.
Six of Forschner's directors serve as directors for Victory
Capital LLC, ("Victory") formerly Forschner Enterprises, Inc.,
including one who serves as Co-Chairman of Victory (See Note 5).
Four of Forschner's directors, one of which is an executive
officer of Forschner, serve as directors of SweetWater, Inc.
("SweetWater").
Simmons Outdoor Corporation ("Simmons"), in which Forschner had
an investment (See Note 5), is a marketer of Victorinox Original
Swiss Army Knives purchased from Forschner to selected sporting
goods distributors. Forschner's sales to Simmons were $296,000
and $472,000 in 1995 and 1994, respectively. Forschner's
purchases from Simmons of optical products for sale to
Forschner's Corporate Markets customers totaled $387,000 and
$1,105,000 in 1995 and 1994, respectively.
An existing company policy authorizes Forschner to compensate, in
the form of a commission of up to 3% of net sales for up to three
years, non-employees for their direct role in introducing
significant new customers to the Company. In 1995 and 1994,
Forschner paid to a relative of one of Forschner's directors half
of a 3% commission on net sales to a customer, on whose board the
same director also serves as a member, which in 1995 and 1994
represented 6% and 25% of Forschner's total revenues (See Note
1). No programs are currently scheduled with this customer in
1996.
In July 1994, Forschner entered into a Services Agreement with
Brae Group, Inc. ("Brae"), a company which is a stockholder of
Forschner and in which a Forschner director and principal
supplier have a controlling and minority stock interest,
respectively. In addition, the President and Chief Executive
Officer of Brae is also a director of Forschner. Under the
Services Agreement, Brae is to provide various services to
Forschner for a period of four
F-13
years relating to maintaining, enhancing, and expanding
Forschner's relationship with Forschner's principal supplier. In
exchange for these services, Brae received an option to purchase
500,000 shares of Forschner'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 (See Note 11).
Effective January 1, 1995, Forschner entered into an agreement
with a director, under which the director received $10,000 per
month for consulting services rendered in 1995. This agreement
was terminated on December 31, 1995.
In December 1995, a Forschner director and former Co-Chairman
entered into an agreement with the Company to become a sole
distributor of Swiss Army Brand products to the golf market.
Investors in this new entity include the Company's principal
supplier and a member of Forschner's Board of Directors who is a
controlling stockholder of Brae.
(5) INVESTMENTS
Investments consist of the following as of December 31, 1995 and
1994:
Carrying Fair
Value Cost Value
-------- ------ -------
December 31, 1995:
Preferred stock of Victory
Capital LLC (A) $ 7,002,990 $ 7,002,990
----------- -----------
Total investment at cost $ 7,002,990 $ 7,002,990
=========== ===========
Common stock of SweetWater,
Inc. (C) $ 1,791,415 $ 3,430,157 $2,907,640
Common stock and note receivable
of affiliated entity (D) 800,000 800,000
------------ ------------
Total investments in common stock
and note receivable of
unconsolidated affiliates $ 2,591,415 $ 4,230,157 $2,907,640
=========== =========== ==========
December 31, 1994:
Preferred stock of Victory
Capital LLC (A) $7,002,990 $7,002,990
---------- ----------
Total investment at cost $7,002,990 $7,002,990
========== ==========
Common stock of Simmons
Outdoor Corporation (B) $2,784,260 $2,784,260 $2,750,000
Common stock of SweetWater,
Inc. (C) 1,678,820 1,678,820 2,371,750
---------- ------------ -----------
Total investments in common stock of
unconsolidated affiliates $4,463,080 $4,463,080 $5,121,750
========== ========== ==========
(A) Victory Capital LLC ("Victory"), formerly Forschner
Enterprises, Inc., is a
F-14
privately held limited liability corporation that intends to
acquire interests in businesses which it believes present an
opportunity for significant equity growth and which may benefit
from Victory's management, operating and financial expertise. In
1994, Forschner invested a total of $6,250,000, acquiring 625,000
shares of preferred stock. In the second quarter of 1994,
Forschner increased its investment in Victory through the
exchange of all of its shares of Tigera Group, Inc. for 75,299
shares of Victory valued at $752,990, and cash of $3,090,
together representing Forschner's cost of Tigera shares
exchanged. The preferred stock that Forschner owns accumulates an
anual Preferred Amount (as defined) in any year in which Victory
has profit. Upon liquidation, assets of Victory are distributed
in accordance with the positive balance in each investor's
Capital Account (after adjustment for unrealized gain and losses
not previously reflected). Forschner is accounting for its
investment on the cost basis.
(B) Simmons Outdoor Corporation was a publicly traded company
whose primary business is marketing and distributing branded
sporting goods products (principally optical in nature). During
1995, Forschner purchased additional shares of common stock for
$1,072,000, raising its percentage ownership to over 20%.
Accordingly, in 1995, the Company accounted for this investment
under the equity method. Forschner's share of the income of
Simmons, net of amortization of goodwill, totaled $1,090,000. In
the fourth quarter of 1995, this investment was sold, resulting
in a pre-tax profit of $1,740,000, which is included in the gain
on sale of investments.
(C) SweetWater, Inc. ("SweetWater") manufactures and sells
portable water purification and filtration systems to the
sporting goods, recreational, travel and tourist, emergency
preparedness and military markets. As of December 31, 1993,
SweetWater was a private company and Forschner owned preferred
stock with a 40% voting interest. In January 1994, SweetWater
issued 718,750 shares of common stock in an initial public
offering (resulting in 1,837,243 shares of common stock
outstanding), at which time Forschner's holdings of preferred
stock were converted into 430,000 shares of common stock. In
January 1994, Forschner sold 72,000 shares of SweetWater to a
stockholder of Victorinox for approximately $374,000. Forschner's
cost for the stock sold was approximately $338,000. Through
December 31, 1994, the Company accounted for this investment at
fair value with changes between cost and fair value reflected as
part of unrealized gains (losses) included as a component of
stockholders' equity. During 1995, Forschner purchased additional
shares of common stock for $1,837,000, raising its percentage
ownership to 38%. Accordingly, in 1995, the Company accounted for
this investment under the equity method. Forschner's share of the
losses of SweetWater, including amortization of goodwill, totaled
$1,638,000. As of December 31, 1995, Forschner owned 20.5% of the
outstanding stock of SweetWater. SweetWater's revenues for the
year ended December 31, 1995 were $2,163,000, and it's assets as
of December 31, 1995 were $7,506,000.
(D) In 1995, the Company purchased 5,160 shares of common stock
and an 8% convertible note due in the year 2000 of a private
affiliated start-up entity that is in the business of designing,
manufacturing and marketing fine jewelry. The common stock and
the convertible note have been recorded at cost. Due to the
start-up nature of this business and to the lack of an
established market for common stock, the valuation of this
investment is subject to uncertainty. The amount the Company will
ultimately realize from this investment may materially differ
from the carrying value.
F-15
(6) OTHER ASSETS
Other assets in the accompanying consolidated balance sheets
consists of the following at December 31, 1995 and 1994:
December 31, Amortization
1995 1994 Period
------- ------ -------------
Goodwill (A) $1,179,189 $1,179,189 10 years
Deferred employment
agreement (B) 1,204,832 1,204,832 4-5 years
Other 2,429,445 1,844,619 1-3 years
----------- -----------
4,813,466 4,228,640
Accumulated amortization (3,166,339) (2,159,756)
----------- -----------
1,647,127 2,068,884
Cash surrender value of
life insurance (See Note 12) 5,855,757 3,668,453
----------- ----------
$7,502,884 $5,737,337
=========== ==========
(A) On September 2, 1992, Forschner acquired certain assets and
assumed certain liabilities of Cuisine de France Limited, a
company which distributes a line of high quality, French-made
forged cutlery. This acquisition was accounted for as a purchase
with the assets acquired and liabilities assumed recorded at
their fair value.
(B) In December 1992, Forschner issued 140,773 shares of its
common stock to a former president and current employee of
Forschner as prepayment of Forschner's obligations under an
employment and deferred compensation agreement. Included in other
assets is the value of the shares on the date issued, net of the
deferred compensation liability previously recorded. The cost is
being amortized over the former president's future period of
service to Forschner.
For the years ended December 31, 1995, 1994 and 1993 amortization
expense was approximately $1,728,000, $1,934,000 and $1,088,000,
respectively.
(7) ACCRUED LIABILITIES
The components of accrued liabilities were as follows as of
December 31, 1995 and 1994:
1995 1994
------ -----
Sales, marketing and promotional $3,318,970 $4,166,437
Payroll related 1,623,641 940,328
Pension 628,303 453,800
Other 3,127,080 3,091,173
---------- ----------
$8,697,994 $8,651,738
========== ==========
F-16
(8) REVOLVING CREDIT AGREEMENT
Forschner has a $15,000,000 revolving credit agreement which, as
amended, carries interest at either the bank's Base Rate, 8.5% at
December 31, 1995 and 1994, or at the London Interbank Offered
Rate (LIBOR), 5.5% and 6.125% at December 31, 1995, and 1994,
respectively, plus 1.25%. The interest rate is at Forschner's
discretion subject to the terms of the loan. Forschner had no
outstanding balance under this agreement at either December 31,
1995 or 1994. Borrowings under this line are to be used for
working capital requirements and, within certain restrictions,
for any corporate purpose. The revolving term loan agreement
contains certain restrictions relating to the payment of
dividends, repurchase of stock, issuance of additional debt and
sale of certain assets. In addition, the agreement requires the
continuation of the exclusive distribution agreement with
Forschner's principal Swiss Army Knife and cutlery supplier (See
Note 3). Under the agreement, earnings available for the payment
of interest (as defined) must not be less than 1.5 times interest
payable, the ratio of current assets to current liabilities must
exceed 2.5:1 and the ratio of indebtedness (as defined) to
tangible net worth cannot exceed .75:1. Any balance outstanding
is due and payable on April 30, 1996, the expiration date of the
facility. The Company's bank has offered to extend the facility
under similar terms with options for reduced pricing. The Company
is in discussions to extend the facility to one or more other
banks.
In addition, the Company maintains a $5,000,000 line of credit
with a financial institution. This facility is unsecured and
contains no restrictions or requirements. Forschner had no
outstanding balance under this agreement at December 31, 1995.
(9) INCOME TAXES
The income tax provision for the years ended December 31, 1995,
1994 and 1993, consists of the following:
Year Ended December 31,
--------------------------------------
1995 1994 1993
-------- ---------- -------
Current
Federal $2,657,745 $7,188,549 $3,926,020
State 508,055 1,088,913 250,748
------------- ----------- -----------
Total current 3,165,800 8,277,462 4,176,768
Deferred
Federal (492,108) (1,258,334) 34,933
State (151,047) (386,233) 9,619
-------------- ------------ ------------
Total deferred (643,155) (1,644,567) 44,552
-------------- ----------- ------------
Provision for income
taxes $2,522,645 $6,632,895 $4,221,320
=========== ========== ============
The 1993 tax provision reflects the reversal of tax liabilities
established in prior years of approximately $500,000 which were
deemed no longer required as a result of clarifications received
from certain taxing authorities.
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and
regulations.
F-17
The cumulative amount of each temporary difference that comprises
the net deferred tax benefit is as follows:
December 31,
1995 1994
------------- -------------
Depreciation $ (150,750) $ (158,399)
Deferred compensation (63,167) (157,844)
LIFO-related reserves currently not
deductible 215,684 193,324
Other reserves currently not
deductible 2,272,042 2,341,134
Equity interest in unconsolidated 651,195 -
affiliates 242,225 305,859
--------------- --------------
Other $ 3,167,229 $ 2,524,074
=============== =============
The effective income tax rate differed from federal statutory
rates for the following reasons:
Year Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
Statutory federal income tax rate 34.0% 35.0% 34.0%
State income taxes, net of
federal income tax benefit 6.8 2.9 1.5
Foreign tax rate differences 0.8 1.4 -
Other 3.2 2.2 1.1
--- --- ---
Effective income tax rate 44.8% 41.5% 36.6%
==== ==== ====
(10) EMPLOYEE BENEFITS
Substantially all employees of Forschner and its subsidiaries are
covered by a noncontributory defined benefit pension plan.
Benefits are based on years of service and the employee's
compensation during the five highest consecutive compensation
years. Costs under the plan are accrued and funded on the basis
of accepted actuarial methods. Total pension expense approximated
$324,000, $218,000 and $185,000, for the years ended December 31,
1995, 1994 and 1993, respectively.
The net periodic pension cost of Forschner's pension plan in
1995, 1994 and 1993 includes the following components:
F-18
1995 1994 1993
------------ ------------ --------
Service cost - benefits
earned during the period $256,331 $196,795 $169,201
Interest cost on projected
benefit obligation 159,618 123,590 117,948
Return on assets (110,233) (94,726) (92,666)
Amortization of net
transition asset (14,188) (14,188) (14,188)
Amortization of unrecognized
prior service cost (13,529) (13,818) (13,818)
Amortization of net loss 46,021 19,939 18,926
---------- ---------- ---------
Net periodic pension cost $324,020 $217,592 $185,403
========= ========= ========
The funded status of Forschner's defined benefit plan at December
31, 1995 and 1994 follows:
1995 1994
---------- ----------
Actuarial present value of:
Vested benefit obligation $1,903,390 $1,157,457
=========== ==========
Accumulated benefit obligation $1,903,390 $1,157,457
=========== ==========
Projected benefit obligation $2,694,164 $2,038,054
Market value of plan assets 1,565,095 1,299,223
----------- ----------
Plan assets less than projected
benefit obligation (1,129,069) (738,831)
Unrecognized net loss 896,032 697,443
Unrecognized prior service cost (281,768) (295,297)
Unrecognized net transition asset (99,322) (113,510)
-------------- ------------
Accrued pension cost ($614,127) ($450,195)
============= ===========
Rates used in determining the actuarial present value of the
projected benefit obligation were as follows:
December 31,
----------------
1995 1994
---- ----
Discount rate 7.00% 7.00%
Rate of increase in future compensation levels 5.00% 5.00%
Expected long-term rate of return on plan assets 8.00% 7.75%
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 percent 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 1995, 1994 and 1993 the Company incurred
expenses of approximately $129,000,
F-19
$88,000 and $69,000 related to this plan.
The Company offers no other post retirement benefits.
(11) STOCKHOLDERS' EQUITY
In 1993 Forschner's stockholders approved an increase in the
number of authorized shares of its common stock from 8,000,000 to
12,000,000 and authorized a new class of 2,000,000 shares of
preferred stock, par value $.10 per share. The Board of Directors
has the authority to determine the relative rights and
preferences of the preferred stock.
During 1994, stockholders approved adoption of The Forschner
Group, Inc. 1994 Stock Option Plan providing for the grant of
options to employees, including officers of the Company, and
members of the Board of Directors. Under this plan and a previous
stock option plan which has expired, options covering 1,949,344
shares of common stock were reserved for issuance, of which
131,219 remain 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 Forschner's common stock
on the date of grant. The vesting of options is determined by the
Stock Option and Compensation Committee, which administers the
plan, and for options outstanding as of December 31, 1995,
vesting ranges from immediately upon grant to five years.
The following table summarizes stock option plan and warrant
activity for the three years ended December 31, 1995:
Number
of Shares Option Price
--------- --------------
Outstanding at December 31, 1992 726,727 $ 3.32 - $14.00
Granted 435,000 $14.38 - $17.50
Exercised (492,194) $ 5.25 - $11.50
-------
Outstanding at December 31, 1993 669,533 $ 3.32 - $17.50
Granted 1,325,000 $10.75 - $15.25
Exercised (111,000) $ 5.25 - $11.50
Canceled (535,000) $14.50 - $17.50
-------
Outstanding at December 31, 1994 1,348,533 $ 3.32 - $17.50
Granted (A) (B) (C) (D) 912,000 $11.75 - $12.88
Exercised (3,750) $ 6.50
Canceled (B) (D) (248,658) $ 3.32 - $17.50
----------
Outstanding at December 31, 1995 2,008,125 $ 5.25 - $14.50
=========
Exercisable at December 31, 1995 1,289,250
(A) In January 1995, the Company issued 637,000 options to
purchase common stock at $12.88 per share to various Forschner
employees, officers and directors. These options are exercisable
in four equal increments over the next three years starting with
the grant date.
F-20
(B) Included as granted are options to purchase 25,000 shares of
common stock at $11.75 per share to a former director, which
replaced the same number of options granted in 1993 at $17.50 per
share, that were canceled concurrently. The newly issued options
retain vesting rights of the options they replaced.
(C) In December 1995, the Company issued a warrant to purchase
100,000 shares of common stock at $12.50 per share to an officer
of the Company. The warrant is exercisable in four equal
increments over three years starting with the grant date.
(D) Included as canceled are 150,000 options to purchase common
stock at $12.88 per share which were issued to a director in
January 1995. At the same time options covering 150,000 shares
were granted to another director at $12.50 per share. These
options are exercisable in four equal increments over three years
starting with the grant date.
(12) COMMITMENTS AND CONTINGENCIES
Forschner has minimum purchase requirements under an agreement
with its principal Swiss Army Knife and cutlery supplier (See
Note 3).
At December 31, 1995, minimum rental payment commitments for
office and warehouse space leased by Forschner under operating
leases are:
1996 $ 1,209,000
1997 1,333,000
1998 1,331,000
1999 1,333,000
2000 1,270,000
Thereafter 810,000
During the years ended December 31, 1995, 1994 and 1993, rent
expense was approximately $1,094,000, $945,000 and $629,000,
respectively.
As of February 2, 1996, Forschner has open contracts to purchase
19,000,000 Swiss francs as a hedge against future purchase of
inventories.
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, 1995, 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
$3,045,000. Under the terms of these life insurance policies, the
Company will make approximate future premium payments, if the
policies remain in force, as follows:
1996 $ 629,984
1997 582,484
1998 597,484
1999 612,484
2000 492,469
Thereafter 1,002,224
F-21
In 1993, Forschner's Board of Directors adopted a charitable
insurance program that will enable Forschner to make a commitment
to the Victorinox-Swiss Army Knife Foundation (the "Foundation"),
a foundation which engages in various charitable activities
including the promotion of athletic events for underprivileged
urban youth, as well as a broad range of charities. In 1994,
Forschner made a special $1.5 million contribution in the form of
cash and common stock to the Foundation. Under the program,
Forschner owns, is the beneficiary of, and pays all the premiums
for life insurance policies on the lives of all Board members.
Pursuant to the program, upon the death of each Director, the
Company will retain 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 Victorinox-Swiss
Army Knife Foundation. The remaining half of the additional
proceeds will be used to fulfill charitable pledges recommended
by the individual Directors. Forschner is generally bound to
continue to pay all premiums on the policies for the lives of the
insured Directors or, in the case of the Chairman of the
Management Committee, as long as he is an officer or a board
member or agrees to serve as a consultant to the Company.
Forschner will make approximate future premium payments related
to these programs as follows:
1996 $ 1,115,194
1997 1,115,194
1998 1,115,194
1999 1,115,194
2000 1,115,194
Thereafter 8,204,744
Under existing federal tax laws, the receipt by Forschner of the
proceeds from an insurance policy upon the death of a director
would not result in regular taxable income to the Company;
however, Forschner may be subject to alternative minimum tax on a
portion of the receipts. When Forschner makes cash contributions
to a designated charity, it will be entitled to a tax deduction
equivalent to the sum of those contributions. The extent of the
utilization of this deduction in that year will depend upon
Forschner'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.
For the policies obtained under the charitable insurance program
in existence at December 31, 1995, based upon estimates prepared
by Forschner's insurance agent, the anticipated expense to be
recorded as a result of the difference between premiums paid and
increases in cash surrender value of the related policies, is
estimated to be less than $150,000 each year through 1998.
Subsequent to 1998, it is estimated that there will be a minor
positive impact on earnings.
The Company entered into an employment agreement dated as of
January 2, 1996 with a director of the Company who, until
December 13, 1995, was Co-Chairman of the Board and Chief
Executive Officer of the Company. The agreement provides that the
former Co- Chairman shall be employed in an executive capacity
with the Company and shall be available to consult with and
advise the Company on such matters as might be requested by
senior management of the Company for at least eighty-five hours
per month on issues dealing with the maintenance of corporate
trademarks, corporate legal matters, and strategic support
relative to strategic relations with Victorinox Cutlery Company,
the Company's key supplier.
F-22
The former Co-Chairman is to be paid a salary of $140,000 per
annum and, during 1996, a one-time bonus of $300,000. The
agreement, which has a term of five years, also provides that
following the termination of the agreement, this individual would
be prohibited from competing, with certain exceptions, with the
business of the Company for a period of three years.
During the normal course of business, Forschner was involved in a
legal action in which a former employee had filed a complaint
against Forschner and Forschner's former Co-Chairman and Chief
Executive Officer alleging age discrimination in connection with
the plaintiff's employment with Forschner, wrongful discharge and
other causes of action relating to plaintiff's discharge from
Forschner. The plaintiff was seeking damages of an unspecified
amount. This legal action was settled in December 1995.
In 1994, in a case originally brought by Forschner 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 Forschner 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 Forschner
product." The court is considering the scope of an order
determining how Arrow must differentiate its product. The Company
intends to utilize all reasonable means to safeguard the public
from being misled by inferior imitation products. Management and
legal counsel believe that the outcome of this litigation will
not result in damages or other costs that would have a material
adverse effect on the financial position of the Company.
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.
F-23
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
---------------------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------- ------------
1995
Net sales $ 29,369,721 $ 25,925,259 $ 30,186,155 $ 41,213,651
Gross profit 10,700,594 8,715,449 10,466,106 14,382,202
Income before income tax
provision 2,194,832 538,773 540,331 2,361,925
Net income 1,270,782 218,183 196,290 1,427,961
Net income per share $ 0.15 $ 0.03 $ 0.02 $ 0.18
1994
Net sales $27,049,038 $39,935,320 $37,264,291 $40,188,671
Gross profit 10,772,990 13,375,373 15,212,347 16,442,848
Income before income tax
provision 2,658,072 2,383,669 5,927,326 5,023,558
Net income 1,539,024 1,380,144 3,431,922 3,008,640
Net income per share $ 0.21 $ 0.17 $ 0.42 $ 0.37
The decrease in net sales and gross profits in the second and
third quarter of 1995 versus 1994, is due primarily to sales to a
single customer for a special promotional program, which ended in
the first quarter of 1995.
F-24
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Column A Column B Column C Column D Column E
Additions
Balance At Charged to
Beginning Costs and Balance At
Classification of Year Expenses Deductions End of Year
Year Ended December 31, 1995:
Allowance for Doubtful Accounts $ 755,000 $220,000 $ - $ 975,000
=========== ======== ======= ===========
Inventory Reserve $ 750,000 $168,000 $ 918,000
=========== ======== $ - ===========
Year Ended December 31, 1994:
Allowance for Doubtful Accounts $ 710,000 $ 45,000 $ - $ 755,000
=========== ========= ===========
Inventory Reserve $ 201,000 $549,000 $ - $ 750,000
=========== ======== ======= ===========
Year Ended December 31, 1993:
Allowance for Doubtful Accounts $1,087,000 $ - ($377,000) $ 710,000
========== ============ ======== ===========
Inventory Reserve $ 440,000 $ - ($239,000) $ 201,000
=========== ============ ========= ===========
F-25
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as............. 'r'
The trademark symbol shall be expressed as........................ 'tm'
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
EXHIBITS
TO
FORM 10-K
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
---------
THE FORSCHNER GROUP, INC.
(Exact name of registrant as specified in its charter)
Commission File No. 0-1282-3
EXHIBIT INDEX
Exhibit Title Exhibit No. Page
------------- ---------- ----
(2) Not Applicable
(3) (A) Articles of Incorporation, as amended, incorporated
by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended December 31,
1993. *
(B) By-Laws, incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year
ended December 31, 1992. (3)-1
(4) Instruments defining the rights of security holders, including indentures:
(A) Excerpts from Certificate of Incorporation, as
amended, incorporated by reference to Exhibit 3(a)
hereto. *
(B) Excerpts from By-Laws, as amended, incorporated by
reference to the Exhibits from Annual Report on
Form 10-K for the fiscal year ended December 31,
1992. *
(9) Not Applicable.
(10) Material Contracts
(A) Employment Agreement dated as of September 15, 1983
between Forschner and Michael M. Weatherly,
incorporated by reference to the Exhibits to
Registration Statement on Form S-18, No. 2-87357-B. *
(B) 1983 Stock Option Plan, incorporated by reference
to the Exhibits to Annual Report on Form 10-K for
the fiscal year ended December 31, 1990. *
(C) Letter Agreement dated December 12, 1983 between
Victorinox Cutlery Company and R.H. Forschner Co.,
Inc. *
(D) Mutual Agreement dated as of October 20, 1986 between Victorinox
Cutlery Company and The
Forschner Group, Inc. *
(E) Letter Agreement dated as of October 20, 1986 between Victorinox
Cutlery Company and The
Forschner Group, Inc. *
(F) Letter Agreement dated August 24, 1988 between The
Forschner Group, Inc. and Recta S.A. *
(G) Mutual Agreement dated October 25, 1988 between
Victorinox Cutlery Co. and The Forschner Group,
Inc. *
(H) Letter Agreement dated June 12, 1989 between Victorinox Cutlery
Co. 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, 1989. *
(I) Agreement to Lease dated June 14, 1990 between The
Forschner Group, Inc. and Petran Trap Falls
Associates, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1990. *
(J) Security agreement dated January 31, 1991 between
The Forschner Group, Inc. and Connecticut National
Bank, incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989. *
(K) Security agreement dated January 31, 1991 between
Swiss Army Brands Ltd. and Connecticut National
Bank, incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989. *
(L) Security agreement dated January 31, 1991 between
Victorinox of Switzerland, Ltd. and Connecticut
National Bank, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989. *
(M) Security agreement dated January 31, 1991 between
Excelsior Advertising, Inc. and Connecticut
National Bank, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989. *
ii
(N) Agreement of guarantee and suretyship dated January
31, 1991 by Swiss Army Brands Ltd. in favor of
Connecticut National Bank, incorporated by
reference to the Exhibits to Annual Report on Form
10-K for the fiscal year ended December 31, 1989. *
(O) Agreement of guarantee and suretyship dated January
31, 1991 by Victorinox of Switzerland, Ltd. in
favor of Connecticut National Bank, incorporated by
reference to the Exhibits to Annual Report on Form
10-K for the fiscal year ended December 31, 1989. *
(P) Agreement of guarantee and suretyship dated January
31, 1991 by Excelsior Advertising Inc. in favor of
Connecticut National Bank, incorporated by
reference to the Exhibits to Annual Report on Form
10-K for the fiscal year ended December 31, 1989. *
(Q) 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. *
(R) Amended and Restated Loan Agreement dated June 18,
1992 between The Forschner Group, Inc. and The
Connecticut National Bank (now known as Shawmut
Bank Connecticut, N.A.), incorporated by reference
to the Exhibits to Annual Report on Form 10-K for
the fiscal year ended December 31, 1992. *
(S) Letter agreement dated June 18, 1992 between The
Forschner Group, Inc. and The Connecticut National
Bank, incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1992. *
(T) License Agreement dated June 30, 1992 between The
Forschner Group, Inc. and Precise Imports
Corporation, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1992. *
(U) Letter agreement dated November 11, 1992 between
The Forschner Group, Inc. and Michael M. Weatherly,
incorporated by reference to the Exhibits to Annual
iii
Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(V) 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. *
(W) License Agreement dated as of January 1, 1993 between Cuisine de
France Limited and Coutel 'Innov, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the fiscal year
ended December 31, 1992. *
(X) 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. *
(Y) Stock Purchase Agreement dated May 17, 1993 between
The Forschner Group, Inc. and K.P.A., Inc. (now
known as SweetWater, Inc.), incorporated by
reference to the Exhibits to Registration Statement
on Form S-1, No. 33-71036, filed by SweetWater, Inc. *
(Z) 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. *
(AA) First Modification to Amended and Restated Loan
Agreement dated as of August 13, 1993 between The
Forschner Group, Inc. and Shawmut Bank Connecticut,
N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993. *
(BB) Second Modification to Amended and Restated Loan
Agreement dated as of February 17, 1994 between The
Forschner Group, Inc. and Shawmut Bank Connecticut,
N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993. *
iv
(CC) Commercial Promissory Note dated February 17, 1994
of The Forschner Group, Inc. in the principal
amount of $15,000,000, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993. *
(DD) 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. *
(EE) License Agreement dated as of July 1, 1993 between
Cuisine de France Limited and Coutel 'Innov,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993. *
(FF) 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. *
(GG) 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. *
(HH) 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. *
(II) 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. *
(JJ) 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. *
v
(KK) 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. *
(LL) 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. *
(MM) Consulting Agreement dated as of December 7, 1991
by and between The Forschner Group, Inc. and Louis
Marx, Jr. *
(NN) Letter Agreement dated June 9, 1994 between The
Forschner Group, Inc. and Forschner Enterprises,
Inc. relating to the purchase by Forschner
Enterprises, Inc. of shares of Tigera Group, Inc. *
(OO) Third Modification to Amended and Restated Loan
Agreement dated as of September 30, 1994 between
The Forschner Group, Inc. and Shawmut Bank
Connecticut, N.A. *
(PP) First Amendment to Lease dated June 16, 1994
between The Forschner Group, Inc. and Petran Trap
Falls Associates. *
(QQ) Restricted Stock Award Agreement dated as of
December 12, 1994 between The Forschner Group, Inc.
and Stanley R. Rawn, Jr. *
(RR) 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. *
(SS) Agreement dated June 30, 1995 between The Forschner
Group, Inc. and Bill-Mar Specialty Company, Inc.,
incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1995. *
(TT) Agreement dated October 6, 1995 between The
Forschner Group, Inc. and James W. Kennedy,
vi
incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1995. *
(UU) Letter agreement dated February 15, 1995 between
The Forschner Group, Inc. and Harry Thompson,
incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1995. *
(VV) Letter agreement dated October 25, 1995 between The
Forschner Group, Inc. and Harry Thompson,
incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1995. *
(WW) Employment agreement dated as of January 2, 1996
between The Forschner Group, Inc. and James W.
Kennedy. (10)-1
(XX) Warrant dated as of December 13, 1995 between The
Forschner Group, Inc. and J. Merrick Taggart. (10)-2
(YY) Letter Agreement dated December 18, 1995 between
The Forschner Group, Inc. and Victorinox Cutlery
Company. (10)-3
(11) Statement re computation of per share earnings is not required because
the relevant computations can be clearly determined from the material
contained in the financial statements included herein.
(12) Not applicable.
(13) Not applicable.
(16) Not Applicable.
(18) Not Applicable.
(21) Subsidiaries of Registrant. 21
(22) Not Applicable.
(23) Consents of experts and counsel: Consent of Arthur Andersen LLP. 23
(27) Not Applicable.
vii
(28) Not Applicable.
(99) Not Applicable.
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* Incorporated by reference
viii