13
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 March 31, 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 ofincorporation (IRS employer identification
or organization) Number)
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 May 5 ,1997
Common stock, $.10 par value 16,509,323
<PAGE>
SWANK, INC.
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements. CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 652 $ 2,871
Accounts receivable, less allowances
of $8,806 and $10,463 9,825 7,977
Inventories, at the lower of cost or market
Raw materials 4,008 3,930
Work in process 6,688 5,122
Finished goods 13,501 24,197 13,318 22,370
Deferred income taxes 2,921 2,921
Prepaid and other current 1,273 1,766
Total current assets 38,868 37,905
Property, plant and equipment, at cost 23,471 23,260
Capital leases 1,404 1,404
less accumulated depreciation and amortization (18,252) 6,623 (17,904) 6,760
Other assets 4,286 4,122
Total assets $49,777 $48,787
LIABILITIES
Current:
Short-term debt $ 5 ,034 $ 0
Current portion of long-term debt 800 1,637
Term loan classified as current 2,495 2,700
Accounts payable 3,528 3,331
Accrued employee compensation 1,555 4,776
Income taxes payable 263 1,483
Other current liabilities 5,689 4,938
Total current liabilities 19,364 18,865
Long-term obligations 8,067 8,591
Total liabilities 27,431 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 570 852
Retained earnings 20,822 23,076 20,776 23,312
Deferred employees' benefits
40,572 and 1,274,788 shares (21) (1,272)
Treasury stock 333,519 and 333,519 shares (709) (709)
Total stockholders' equity 22,346 21,331
Total liabilities and stockholders' equity $49,777 $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 MARCH 31, 1997 AND 1996
(Dollars in thousands)
----------------
1997 1996
Net Sales $27,567 $30,706
Cost of goods sold 14,729 18,585
Gross profit 12,838 12,121
Selling and administrative expenses 12,538 12,850
Income (loss) from operations 300 (729)
Interest charges 224 461
Income (loss) before income taxes 76 (1,190)
(Provision) benefit for income taxes (30) 297
Net income (loss) $46 $(893)
Share and per share information:
Weighted average common shares outstanding 16,501,921 15,845,062
Net income (loss) per share $0.00 $(.06)
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 QUARTERS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands)
--------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 46 $ (893)
Adjustments to reconcile net income (loss)
to net cash used in operations:
Depreciation and amortization 454 326
Decrease in receivable allowances (1,657) (1,962)
Increase in post retirement benefits 75 93
Changes in assets and liabilities
Increase in accounts receivable (191) (1,346)
(Increase) decrease in inventory (1,827) 3,151
Decrease in prepaid and other current assets 387 23
(Increase) decrease in other assets (164) 145
Decrease in accounts payable, accrued and other liabilities (3,358) (1,721)
Net cash used in operations (6,235) (2,184)
Cash flow from investing activities:
Capital expenditures (213) (134)
Net cash used in investing activities (213) (134)
Cash flow from financing activities:
Borrowing under revolving credit agreements 8,253 3,000
Payments of borrowings under revolving credit agreements (3,219) -
Principal payments on long-term debt (705) -
Payments of capital lease obligations (79) -
Advance to retirement plan (21) (17)
Net cash provided by financing activities 4,229 2,983
Net increase (decrease) in cash and cash equivalents (2,219) 665
Cash and cash equivalents at beginning of period 2,871 1,121
Cash and cash equivalents at end of period $ 652 $1,786
</TABLE>
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 March 31,
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 included 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.
2) During the three month period ended March 31, 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, management does not
believe the effect of adoption will be material.
<PAGE>
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results 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 of the
first quarter are not necessarily indicative of the results to be
expected for the full year.
Net Sales
Net sales for the quarter ended March 31, 1997 were
$27,567,000, a decrease of $3,139,000 or 10%, from the quarter
ended March 31, 1996. The largest portion of this decrease is a
result of the Company's actions to reduce excess inventories in
the first quarter of 1996.
Men's and Women's Jewelry net sales declined $638,000 or 5% for
the quarter, Men's Leather Accessories sales fell $2,237,000 or
14%, and other product lines' sales decreased $264,000 or 37%.
The decrease in Jewelry net sales was primarily due to greater
sales of excess and out of line merchandise in the first quarter
of 1996. The market for Women's Jewelry continues to be difficult
due to a lackluster retail environment for fashion accessories.
Over half of the change in Men's Leather Accessories sales is
attributable to personal leather goods. During the first quarter
of 1996, sales of excess and out of line merchandise were
greater than in 1997 and also included initial shipments of new
mass merchandise programs. In addition, 1997 was adversely
affected by supply issues. The remainder of the change in Men's
Leather Accessories sales was due primarily to declines in the
disposition of excess and out of line belt merchandise from the
levels experienced in the first quarter of 1996. A portion may
also have been attributable to a reduction in orders of
established products by certain retailers pending availability of
the Company's new Men's designer lines. Significant 1997
shipments of products in the Company's new Men's lines did not
begin until late in the quarter. Although management anticipates
that the Company will be strengthened by the addition of the new
lines, unfavorable consumer acceptance of the new lines could
adversely affect future operating results. The reduction in net
sales for other product lines is primarily due to decreases
associated with certain merchandise sold through the Company's
factory outlets.
Net sales at the Company's factory outlets, which are
included in the net sales amounts by product above, decreased
$468,000 or 29% for the quarter ended March 31, 1997. Same-store
sales decreased 3% in the quarter and the remaining 26% was due
to the closure of 11 store locations in 1996 and an additional 5
during the first quarter of 1997. Factory outlet sales
constituted less than 5% of consolidated net sales in the quarter
ended March 31, 1997. The Company believes the factory outlets
are still a valuable distribution channel for the disposition of
excess inventory and /or discontinued inventory and continues to
assess the performance of each store.
<PAGE>
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations (continued)
Gross Profit
Gross profit for the quarter ended March 31, 1997 increased
$718,000 or 6%. Gross profit expressed as a percentage of net
sales increased to 46.6% from 39.5% for the quarter. Gross
profit increased $829,000 (13%) and $11,000 (.2 %) for Men's and
Women's Jewelry and Men's Leather Accessories, respectively.
Gross profit decreased $122,000 or 38% for other product lines
which consist of certain items sold through the Company's factory
outlets.
Gross profit as a percent of sales for the quarter increased to
52.3% from 44.0% for Men's and Women's Jewelry and to 41.1% from
35.3% for Men's Leather Accessories. Gross profit as a percent of
sales for other product lines decreased to 43.6% from 44.6%. The
improvement in gross margin during the quarter is attributable to
lower product costs and a more favorable sales mix resulting from
reduced shipments of excess and out-of-line merchandise vs. the
comparable period in 1996. The gross profit improvement was also
due to favorable manufacturing overhead variances incurred during
the quarter. The Company temporarily increased jewelry
production levels during the quarter in order to improve delivery
positions on certain merchandise programs, primarily for shipment
during the quarter.
Customer returns through March 31, 1997 are generally
consistent with the estimates utilized in establishing the
allowance for customer returns as of December 31,1996. First
quarter adjustments to the allowance in 1997 and 1996 include
routine accruals for estimated returns on current period sales
and charges for actual returns received through March 31. The
extent of the variance, if any, of actual 1997 returns from the
allowance established at December 31, 1996 will be finally
determined during the second quarter and recorded at that time.
Specific incremental allowances were provided at December 31,
1996 for returns associated with the transition in Men's designer
lines. There have been no significant adjustments to these
allowances as the actual returns are anticipated in subsequent
quarters.
Selling and Administrative Expenses
Selling and administrative expenses decreased $312,000 or 2%
for the quarter ending March 31, 1997, principally due to lower
costs associated with fringe benefits. Year-to-year reductions
in selling expenses attributable to the closure of factory
outlets were offset by increases in advertising and promotional
expenditures. Total advertising and promotional expenditures
totaled 8.4% and 5.7% of net sales for the quarters ending March
31, 1997 and March 31, 1996, respectively. Advertising and
promotion expenses were lower in 1996 due to the financial
constraints which the Company was experiencing at the time.
Selling and administrative expenses as a percent of net sales
increased to 45.5% from 41.8% primarily due to the decrease in
net sales.
Interest Expense
Interest expense decreased $237,000, or 51%, for the quarter
ended March 31, 1997 reflecting reduced borrowing levels during
the quarter and lower average interest rates on bank debt. The
Company did not commence substantial borrowings under its
revolving credit agreement until late February 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations (continued)
Provision for Income Taxes
The Company recorded a provision for income taxes at an
effective rate of 39.0% for the quarter ending March 31, 1997
which approximates blended state and federal statutory rates. The
Company recorded a tax benefit during the first quarter 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 earnings (loss)
per share are adjusted to include shares held by the Company's
employee stock ownership plan deemed to be allocated to
participants in accordance with Statement of Position 93-6
"Accounting for Employee Stock Ownership Plans."
Liquidity and Capital Resources
The Company's working capital increased $464,000 during
quarter ended March 31, 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 quarter totaled $6,235,000,
consisting primarily of reductions in receivable allowances, an
increase in inventory balances, and a decrease in accounts
payable, accrued and other, the latter attributable to payments
of compensation accrued at year end and income taxes. Inventory
levels increased $1,827,000 or 8% during the quarter reflecting
seasonal growth 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 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 $213,000 for equipment.
Cash provided by financing activities totaled $4,229,000
consisting primarily of net borrowings under the Company's
revolving credit agreement and a $705,000 prepayment of long-
term bank borrowings as required by the loan agreements.
"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.
<PAGE>
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
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: May 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095779
<NAME> SWANK, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-START> JAN-01-1997
<CASH> 652
<SECURITIES> 0
<RECEIVABLES> 18,631
<ALLOWANCES> 8,806
<INVENTORY> 24,197
<CURRENT-ASSETS> 38,868
<PP&E> 24,875
<DEPRECIATION> 18,252
<TOTAL-ASSETS> 49,777
<CURRENT-LIABILITIES> 19,364
<BONDS> 0
0
0
<COMMON> 1,684
<OTHER-SE> 20,662
<TOTAL-LIABILITY-AND-EQUITY> 49,777
<SALES> 27,567
<TOTAL-REVENUES> 27,567
<CGS> 14,729
<TOTAL-COSTS> 14,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 137
<INTEREST-EXPENSE> 224
<INCOME-PRETAX> 76
<INCOME-TAX> 30
<INCOME-CONTINUING> 46
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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