SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 1-5354
SWANK, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1886990
(State or otherjurisdiction of (IRS employer identification Number)
incorporatio or organization)
6 Hazel Street, Attleboro, Massachusetts 02703
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 508-222-3400
Former name, former address and former fiscal year, if changed since
last report.
Indicate by X 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 __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court:
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable
date:
Title of Class Shares Outstanding on July 31, 1997
Common stock, $.10 par value 16,509,523
<PAGE>
SWANK, INC.
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements. CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 254 $ 2,871
Accounts receivable,less allowances
of $7,731 and $10,463 8,932 7,977
Inventories, at the lower of cost or
market
Raw materials 5,179 3,930
Work in process 6,756 5,122
Finished goods 16,259 28,194 13,318 22,370
Deferred income taxes 2,921 2,921
Prepaid and other current 1,279 1,766
Total current assets 41,580 37,905
Property, plant and equipment,
at cost 23,602 23,260
Capital leases 1,404 1,404
less accumulated depreciation and
amortization (18,606) 6,400 (17,904) 6,760
Other assets 4,356 4,122
Total assets $52,336 $48,787
LIABILITIES
Current:
Short-term debt $ 8,900 $ 0
Current portion of term loan and
capital leases 1,137 1,637
Term loan classified as current 2,295 2,700
Accounts payable 3,571 3,331
Accrued employee compensation 3,943 4,776
Income taxes payable 1,483
Other current liabilities 3,075 4,938
Total current liabilities 22,921 18,865
Long-term obligations 7,992 8,591
Total liabilities 30,913 27,456
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
Authorized 1,000,000 shares
Common stock, par value $.10
Authorized 43,000,000 shares:
Issued 16,843,042 and 16,843,042
shares 1,684 1,684
Capital in excess of par value 571 852
Retained earnings 20,134 22,389 20,776 23,312
Deferred employees' benefits
438,941 and 1,274,788 shares (257) (1,272)
Treasury stock 333,519 and 333,519 shares (709) (709)
Total stockholders' equity 21,423 21,331
Total liabilities and stockholders'
equity $52,336 $48,787
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
SWANK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE QUARTERS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
----------------
1997 1996
Net Sales $27,580 $29,251
Cost of goods sold 16,020 16,890
Gross profit 11,560 12,361
Selling and administrative expenses 12,344 12,840
Loss from operations (784) (479)
Interest charges 342 505
Loss before income taxes (1,126) (984)
Benefit (provision) for income taxes 439 (247)
Net loss $(687) $(737)
Share and per share information:
Weighted average common shares outstanding 16,273,957 15,442,954
Net loss per share $(.04) $(.05)
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
SWANK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
----------------
1997 1996
Net Sales $55,146 $59,957
Cost of goods sold 30,749 35,475
Gross profit 24,397 24,482
Selling and administrative expenses 24,881 25,691
Loss from operations (484) (1,209)
Interest charges 567 966
Loss before income taxes (1,051) (2,175)
Benefit for income taxes 410 544
Net loss $(641) $(1,631)
Share and per share information:
Weighted average common shares outstanding 16,387,939 15,644,088
Net loss per share $(.04) $(.10)
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
SWANK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
--------------
1997 1996
Cash flow from operating activities:
Net loss $(641) $(1,631)
Adjustments to reconcile net loss
to net cash (used in) provided by operations:
Depreciation and amortization 914 867
Decrease in receivable allowances (2,733) (3,414)
Increase in post retirement benefits 150 84
Loss on disposal of fixed assets - 74
Changes in assets and liabilities
Decrease in accounts receivable 1,777 3,861
(Increase) decrease in inventory (5,824) 3,449
Decrease in prepaid and other current
assets 276 452
(Increase) decrease in other assets (233) 476
Decrease in accounts payable, accrued
and other liabilities (3,539) (3,050)
Net cash (used in) provided
by operations (9,853) 1,168
Cash flow from investing activities:
Capital expenditures (343) (313)
Net cash used in investing
activities (343) (313)
Cash flow from financing activities:
Borrowing under revolving credit
agreements 20,209 6,815
Payments of borrowings under revolving
credit agreements (11,309) (7,416)
Principal payments on term loan (905) -
Payments of capital lease obligations (159) (62)
Advance to retirement plan (257) (412)
Net cash provided by (used in
in) financing activities 7,579 (1,075)
Net decrease in cash and cash equivalents (2,617) (220)
Cash and cash equivalents at beginning of
period 2,871 1,121
Cash and cash equivalents at end of
period $254 $901
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
Notes to Unaudited Condensed Consolidated Financial Statements.
(1) The unaudited information furnished herein reflects all
adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary to present
a fair statement of the results for the periods ended June
30, 1997 and 1996. The financial information contained herein
represents condensed financial data and, therefore, does not
include all footnote disclosures required to be included in
financial statements prepared in conformity with generally
accepted accounting principles. Footnote information was
included in financial statements incorporated by reference in
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996. The condensed financial data
included herein should be read in conjunction with the
information in the Annual Report. Certain prior year amounts
have been reclassified to conform to the current year's
presentation.
(2) During the six month period ended June 30, 1997, the Company
has not incurred any material changes in commitments and
contingencies as previously referenced in Footnote I of the
1996 Annual Report.
(3) During the quarter ended March 31, 1997, the Company
fulfilled its previously recorded commitment to allocate
1,274,788 shares to the individual accounts of participants
in the stock ownership component of the Company's retirement
plan. As a result of the allocation, deferred employee
benefits was reduced by $1,272,000, accrued employee
compensation was reduced by $990,000 and capital in excess of
par value was reduced by $282,000.
(4) In February 1997, the FASB issued Statement No. 128,
"Earnings Per Share," which establishes standards for
computing and presenting earnings per share data. The Company
will adopt Statement 128 in the fourth quarter of fiscal 1997
and, based on the existing simple capital structure of the
Company, does not believe the effect of adoption on the
earnings per share calculation will be material.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition andResults of Operations
Results of Operations
As is customary in the fashion accessories industry, the
Company makes modifications to its lines coinciding with the
Spring (January - June) and Fall (July - December) seasons. The
Company believes that results of operations are more meaningful
on a seasonal basis (six months) than on a quarterly basis as the
timing of sales and related income between quarters can be
affected by the availability of materials, retail sales and
fashion trends. These factors may affect the shift of volume
between quarters within a season differently in one year than
another. Due to seasonality and other factors, the results for
the second quarter and first half of the year are not necessarily
indicative of the results to be expected for the full year.
Net Sales
Net sales for the quarter and for the six months ended June 30,
1997 were $27,580,000 and $55,146,000, respectively, a decrease
of $1,671,000 (6%) and $4,811,000 (8%) from the quarter and six
months ended June 30, 1996, respectively. Net sales of Men's and
Women's Jewelry decreased by $999,000 (8%) and $1,636,000 (6%)
compared to the quarter and six months ended June 30, 1996.
Men's leather accessories net sales declined by $237,000 (2%) and
$2,476,000 (8%), respectively, while net sales of Other products
fell by $435,000 (45%) and $699,000 (41%) from the quarter and
six months ending June 30, 1996, respectively.
Included in net sales for both the quarters and the six
months periods ending June 30, are annual second quarter
adjustments to record the variance between customer returns of
prior year shipments actually received in the current year and
the estimate used to establish the allowance for customer returns
at the end of the preceding fiscal year. These adjustments
increased net sales in both 1997 and 1996 but, as set forth in
the following table, the aggregate increase in 1997 was $344,000
less than in 1996.
Increase (Decrease) in Net Sales
1997 1996 Change
Men's and Womens Jewelry $292,000 $1,059,000 $(767,000)
Men's Leather Accessories 752,000 188,000 564,000
Other products (3,000) 138,000 (141,000)
Total $1,041,000 $1,385,000 $(344,000)
The decline in Jewelry net sales for the quarter ended June 30,
1997 was primarily due to the reduced effect on 1997 of the
returns adjustment described above. For the six months ended
June 30, 1997, the reduction in Jewelry sales is also
attributable to the Company's actions to reduce excess
inventories during 1996 which produced more sales of closeout
and discontinued merchandise than in 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
The decrease in Men's Leather accessories net sales for the
quarter ended June 30, 1997, net of an increase resulting from
the returns adjustment described above, is mainly attributable to
continuing lower shipments of Men's personal leather goods. The
reduction in Men's leather accessories sales for the six months
ended June 30, 1997 also resulted from first quarter declines in
the disposition of excess and discontinued belt merchandise and
the adverse effect of supply issues experienced in the first
quarter, both as compared to the first quarter of 1996. Net sales
during the quarter and six month period in 1997 may also have
been adversely affected by a reduction in orders for established
products by certain retailers pending the availability of the
Company's new Men's designer lines. Although management
anticipates that the Company will be strengthened by the addition
of new lines, unfavorable consumer acceptance of the new lines
could adversely affect future operating results.
The decrease in net sales of Other products for both the
quarter and six months ended June 30, 1997 reflects reduced sales
of merchandise sold through the Company's factory outlet division
and the reduced effect on 1997 of the returns adjustment which
arose from residual effects of the gift line discontinued in
1995.
Net sales at the Company's factory outlets, which are included
in the net sales amounts set forth by product above, decreased by
$738,000 and $1,206,000 for the quarter and six months ended June
1997, respectively. Comparable-store sales increased 4% in the
quarter and 1% for the six-month period with the remaining
decrease attributable to store closings. The Company closed 13
store locations during the first six months of 1996 and seven in
the first six months of 1997, including one in the quarter ended
June 30, 1997. Factory outlet sales constituted less than 5% of
consolidated net sales for both the quarter and six-month period
ended June 30, 1997. Management continues to assess the
performance of each store location and believes that the
Company's factory outlet division is still an attractive
distribution channel for the disposition of excess and
discontinued merchandise.
Gross Profit
Gross profit for the quarter and six months ended June 30, 1997
decreased $801,000 (7%) and $85,000 (less than 1%), respectively.
Men's and Women's Jewelry gross profit decreased $279,000 (5%)
for the quarter but increased $550,000 (5%) for the six month
period, as compared to the equivalent periods in 1996. Men's
Leather Accessories and Other products' gross profit decreased
$100,000 (2%) and $422,000 (65%), respectively, for the quarter
and decreased $89,000 (1%) and $546,000 (57%) , respectively, for
the six months ended June 30, 1997. Gross profit from Other
products includes merchandise sold through the Company's factory
outlets and, in 1996, the residual effects of the gift line
discontinued in 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Included in gross profit for both the quarter and the six months
ending June 30, are annual second quarter adjustments to record
the variance between customer returns of prior year shipments
actually received in the current year and the allowance for
customer returns which was established at the end of the
preceding fiscal year. These adjustments increased gross profit
in both 1997 and 1996 but, as set forth in the following table,
the aggregate increase in 1997 was $372,000 less than in 1996.
Increase (Decrease) in Gross Profit
1997 1996 Change
Men's and Womens Jewelry $210,000 $674,000 $(464,000)
Men's Leather Accessories 476,000 72,000 404,000
Other product lines (2,000) 310,000 (312,000)
Total $684,000 $1,056,000 $(372,000)
Gross profit expressed as a percentage of net sales decreased
to 41.9% from 42.3% for the quarter and increased to 44.2% from
40.8% for the six months ended June 30, 1997, as compared to the
equivalent periods in 1996.
Men's and Women's Jewelry gross profit as a percent of net
sales increased to 44.3% from 43.0% for the quarter and to 48.7%
from 43.5% for the six months ended June 30, 1997, as compared to
the equivalent periods in 1996. The increase in gross profit
percentage for Men's and Women's Jewelry during the quarter was
primarily due to lower inventory control expenses offset
partially by increased merchandise costs and by the lower
adjustment to the allowance for returns, as set forth in the
table above. The improved gross profit in Men's and Women's
Jewelry for the six months ended June 30, 1997 was mostly
attributable to the first quarter of 1997 when lower product
costs, a more favorable sales mix resulting from reduced
shipments of excess and out-of-line merchandise and favorable
manufacturing overhead variances combined to increase gross
profit by 8.3% vs. the same period in 1996. The Company
temporarily increased jewelry production levels early in 1997 to
improve deliveries on certain first quarter shipments.
Gross profit as a percent of net sales for Men's Leather
accessories was 40.2% and 40.6% for the quarter and six months
ended June 30, 1997, respectively, compared to 40.2% and 37.8%
for the quarter and six month period ended June 30, 1996,
respectively. Gross profit for the six months improved as a
percentage of net sales primarily due to lower product costs and
more favorable manufacturing overhead variances achieved in the
first quarter in connection with the Company's belt manufacturing
operations. Second quarter gross profit as a percentage of net
sales was flat, , as compared to the equivalent period in 1996,
primarily due to increased inventory control expenses relating to
small leather goods.
Other products' gross profit decreased from 66.5% in 1996 to
41.9% of net sales for the quarter ended June 30, 1997 and from
57.3% to 42.6% for the six months ended June 30, 1997, primarily
because of the year-to-year difference in the adjustment to the
reserve for returns recorded during the quarter ended June 30.
Gross profit discussed by product above includes amounts sold
through the Company's factory outlet stores. Gross profit for
the factory outlet stores declined by $309,000 and $545,000 for
the quarter and six months ended June 30, 1997, primarily due to
store closings in each year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Selling and Administrative Expenses
Selling and administrative expenses decreased $496,000 (4%)
for the quarter ending June 30, 1997, and by $810,000 (3%) for
the six months ended June 30, 1997, as compared to the preceding
year principally due to lower administrative costs including
fringe benefits and reduced provision for bad debts in 1997.
Total advertising and promotional expenditures totaled 8.4% and
6.4% of net sales for the six months ending June 30, 1997 and
June 30, 1996, respectively. Advertising and promotion expenses
were lower in 1996 due to the financial constraints which the
Company was experiencing at that time. In addition, the 1997
percentage is also affected by the decrease in net sales in 1997.
Selling and administrative expenses as a percentage of net sales
increased to 44.8% in 1997 from 43.9% for the quarter and to
45.1% in 1997 from 42.8% for the six months ended June 30,
primarily due to the decrease in net sales.
Interest Expense
Interest expense decreased $163,000 (32%) for the quarter and
$399,000 (41%) for the six months ended June 30, 1997 reflecting
reduced borrowing levels during these periods. The Company did
not commence substantial current year borrowings under its
revolving credit agreement until late February 1997.
Provision for Income Taxes
The Company recorded a provision for income taxes at an
effective rate of 39.0% for the quarter and six ,month periods
ending June 30, 1997 which approximates blended state and federal
statutory rates. The Company recorded a tax benefit during the
comparable periods of 1996 at an effective rate of 25%, which is
below the federal statutory rate, to reflect the then anticipated
utilization of alternative minimum tax credit carryforwards.
Earning (Loss) Per Share
Average shares outstanding used to compute loss per share
are reduced by shares held by the Company's employee stock
ownership plan, net of shares deemed to be allocated to
participants.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Liquidity and Capital Resources
The Company's working capital decreased $381,000 during the
six months ended June 30, 1997.
As is customary in the fashion accessories industry,
substantial percentages of the Company's sales and earnings occur
in the months of September, October and November, during which
the Company makes significant shipments of its products to
retailers for sale during the holiday season. As a result,
receivables peak in the fourth quarter. The Company generally
builds its inventory during the first three quarters of the year
to meet the demand for the holiday season. The required cash is
provided by a revolving credit facility.
Cash used in operations for the six month period totaled
$9,853,000, consisting primarily of reductions in accounts
receivable and receivables allowances, an increase in
inventories, and a decrease in accounts payable, accrued and
other, the latter attributable to payments in the current year of
compensation and income taxes accrued at year end. Inventory
levels increased $5,824,000 or 26% during the period reflecting
seasonal growth, including planned earlier procurement in 1997
designed to improve customer delivery performance for the fall
season, and certain increases in connection with product
transitions in Men's lines. The Company's inventories
traditionally are at a seasonal low point at year-end. The
Company continues to focus on asset management as part of its
overall program to enhance its competitiveness, productivity and
efficiency. Accounts receivable decreased from the seasonally
higher year-end levels. Accounts receivable allowances decreased
due to actual charges processed for cash discounts, doubtful
accounts, in-store markdowns, cooperative advertising and
customer returns. These reductions are partially offset by
increases resulting from accruals associated with current period
activity.
Cash used in investing activities was $343,000 for equipment.
Cash provided by financing activities totaled $7,579,000
consisting primarily of net borrowings under the Company's
revolving credit agreement and payments of bank term borrowings
including a $705,000 prepayment required by the loan agreements
and the first scheduled $200,000 quarterly payment on the term
loan.
"Forward Looking Statements"
Certain of the preceding paragraphs contain "forward
looking statements" under the securities laws of the United
States. Actual results may vary from anticipated results as a
result of various risks and uncertainties, including sales
patterns, overall economic conditions, competition, pricing,
consumer buying trends and other factors.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial data schedule.
(b) Reports on Form 8-K - none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SWANK, INC.
Registrant
\s\ Christopher F. Wolf
Christopher F. Wolf
Senior Vice President, Treasurer
and Chief Financial Officer
Date: August 6, 1997
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<NAME> SWANK, INC.
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<COMMON> 1,684
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