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, 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 no. 1-5354
SWANK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-1886990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Hazel Street, Attleboro, Massachusetts 02703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 222-3400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.10 par value
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 the Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
<PAGE>
The aggregate market value of the Common Stock of the
Registrant held by non-affiliates of the Registrant on March 6,
1998 was $7,512,688. Such aggregate market value is computed by
reference to the last sale price of the Common Stock on such date.
The number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
16,514,523 shares of Common Stock as of the close of business on
March 6, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to
Stockholders for the fiscal year ended December 31,
1997 - Incorporated by reference into Part II of this
Form 10-K.
Portions of the Registrant's Proxy Statement relating
to the Registrant's 1998 Annual Meeting of Stockholders -
Incorporated by reference into Part III of this Form
10-K.
<PAGE>
PART I
Item 1. Business.
Swank, Inc. (the "Company") was incorporated on April 17,
1936. The Company is engaged in the manufacture, sale and
distribution of men's and women's fashion accessories under the
names "Geoffrey Beene", "Pierre Cardin", "Kenneth Cole", "Yves
Saint Laurent", "Swank", "Colours by Alexander Julian", "Anne
Klein", "Anne Klein II" and "Guess?", among others.
Products
The Company's principal product categories are described
below:
Men's jewelry consists principally of cuff links, tie
klips, chains and tacs, bracelets, neck chains, vest chains, collar
pins, key rings, money klips and watches distributed under the
names "Geoffrey Beene", "Pierre Cardin", "Kenneth Cole", "Yves
Saint Laurent", "Guess?", "Swank", and "Colours by Alexander
Julian". Women's jewelry consists principally of necklaces,
earrings, pendants, chokers, bracelets, hair ornaments and scarf
clips distributed under the names "Anne Klein" and "Anne Klein II"
and "Guess?". The Company also manufactures women's jewelry
(principally necklaces, brooches, hair accessories and earrings)
for private label distribution.
Leather accessories consist primarily of belts, billfolds,
wallets, key cases, card holders and suspenders distributed under
the names "Geoffrey Beene", "Pierre Cardin", "Kenneth Cole", "Yves
Saint Laurent", "Guess?", "Swank" and "Colours by Alexander
Julian". The Company also manufactures leather items for private
label distribution.
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. The Company's bank borrowings
are at a peak during the months of August, September, October and
November to enable the Company to carry significant amounts of
inventory and accounts receivable.
The relative contributions to total net sales and gross
profit from the Company's principal product categories for the last
three fiscal years and the relative year-to-year changes in such
contributions during such period are shown in the following table:
<PAGE>
Fiscal Year Ended December 31,
Percentage Change
1997 1996 1995 1997-96 1996-95
Contribution to Net Sales
$ 59,186 $ 55,988 $ 59,271 Men's and Women's Jewelry 6% (6%)
75,098 72,967 74,786 Men's Leather Accessories 3% (2%)
2,790 3,687 6,045 Other* (24)% (39%)
$137,074 $132,642 $140,102 Total Net Sales 3% ( 5%)
Contribution to Gross Profit
$ 29,015 $ 26,054 $ 25,323 Men's and Women's Jewelry 11% 6%
29,077 30,325 27,335 Men's Leather Accessories (4)% 1%
1,435 1,867 1,670 Other* (23)% 12%
$ 59,527 $ 58,246 $54,328 Total Gross Profit 2% 7%
* Includes a men's accessories (gifts) line, which was
discontinued during the fourth quarter of fiscal 1995, and certain
merchandise sold through factory outlets.
Sales and Distribution
The Company's customers are primarily major retailers
within the United States. Sales to the Company's two largest
customers accounted for approximately 17% and 13% of consolidated
net sales in 1997, 17% and 13% in 1996 and 19% and 12% in 1995,
respectively. No other customer accounted for more than 10% of
consolidated net sales during such fiscal years. Exports to foreign
countries accounted for 8%, 9% and 7% of consolidated net sales in
each of the Company's fiscal years ended December 31, 1997, 1996
and 1995, respectively.
Approximately 96 salespeople and district managers are
engaged in the sale of products of the Company, working out of
sales offices located in five major cities throughout the United
States. The Company has established separate sales forces to
handle the distribution to retailers of (a) women's jewelry and (b)
the remaining products of the Company. In certain foreign
countries, the Company has licensed or sub-licensed the production
and sale of certain of its lines under royalty arrangements.
In addition to the sale of the Company's products through
wholesale channels, the Company sells certain of its products at
retail in 17 Company-operated factory outlet stores located in 11
states.
<PAGE>
Manufacturing
Items manufactured by the Company accounted for
approximately 63% of total sales. The Company manufactures and/or
assembles jewelry products at the Company's plant in Attleboro,
Massachusetts and manufactures leather goods at the Company's plant
in Norwalk, Connecticut. Raw materials are purchased in the open
market from a number of suppliers and are readily available.
Items not manufactured by the Company include wallets and
certain jewelry, leather items, belt buckles, and other
accessories which are purchased domestically or imported from
countries in Europe, South America, Central America and the Far
East.
Advertising Media and Promotion
Substantial expenditures on advertising and promotions
are an integral part of the Company's business. Approximately 7%
of net sales was expended on promotions in 1997, of which
approximately 1% was for advertising media, principally in national
consumer magazines, trade publications, newspapers, radio and
television, and approximately 6% was for fixtures, displays, point-
of-sale materials, cooperative advertising and other in-store
promotions.
Competition
The businesses in which the Company is engaged are highly
competitive. The Company competes with, among others, David
Donahue in men's jewelry; Rolfs, Mundy and retail private label
programs in small leather goods; Trafalgar, Salant, Humphrey,
Textan, Tandy Brands Accessories, Inc. and private label programs
in men's belts; and Monet, Carol Lee and Victoria Creations in
women's jewelry. The ability of the Company to continue to compete
will depend largely upon its ability to create new designs and
products, to make improvements on its present products and to offer
the public high quality merchandise at popular prices.
<PAGE>
Patents, Trademarks and Licenses
The Company owns the rights to various trademarks, trade
names and copyrights and has exclusive licenses in the United
States for, among other things, (i) men's and women's leather
accessories under the name "Pierre Cardin", (ii) men's costume
jewelry under the name "Pierre Cardin", (iii) women's jewelry under
the names "Anne Klein" and "Anne Klein II", (iv) men's jewelry and
leather accessories under the names "Yves Saint Laurent", "Geoffrey
Beene", "Kenneth Cole" and "Colours by Alexander Julian", and (v)
men's leather accessories and men's and women's jewelry under the
name "Guess?". The Company's "Pierre Cardin", "Yves Saint
Laurent", "Geoffrey Beene", "Kenneth Cole", "Anne Klein", "Anne
Klein II" and "Guess?" licenses may be considered material to the
Company's business. The "Pierre Cardin" licenses provide for
percentage royalty payments not exceeding 5% of sales. The "Anne
Klein" and "Anne Klein II" license provides for percentage royalty
payments not exceeding 6% of sales. The "Guess?" and "Geoffrey
Beene" licenses provide for percentage royalty payments not
exceeding 7% of sales. The "Yves Saint Laurent" and "Kenneth Cole"
licenses provide for percentage royalty payments not exceeding 8%
of sales. The license agreements generally specify minimum
royalties and minimum advertising and promotion expenditures. The
Company's Geoffrey Beene licenses expire June 30, 1999. The
Company's licenses to distribute "Pierre Cardin" jewelry and
leather accessories expire December 31, 1999. The Company's "Anne
Klein" and "Anne Klein II" license expires December 31, 1999. The
Company's "Guess?" licenses expire June 30, 2000. The Company's
"Kenneth Cole" licenses expire December 31, 1999 (jewelry) and 2000
(leather accessories). The Company's "Yves Saint Laurent" licenses
expire December 31, 2001.
Employees
The Company has approximately 1,280 employees, of whom
approximately 925 are production employees. None of the Company's
employees are represented by labor unions and management believes
its relationship with its employees to be satisfactory.
Item 2. Properties.
The Company's main administrative office is located in a
three-story building, containing approximately 193,000 square feet,
on a seven-acre site owned by the Company in Attleboro,
Massachusetts. The Company manufactures and/or assembles jewelry
products at this facility.
The Company's national and international sales offices,
executive offices and regional sales offices are located in leased
premises at 90 Park Avenue, New York City. The leases of such pre-
mises expire in 2000. Regional sales offices are also located in
leased premises in Beverly Hills, Chicago, Atlanta, Dallas and a
branch office is leased in Scottsdale. The leases for the
preceding premises expire from 1998 to 2003. Collectively, these
offices contain approximately 26,700 square feet.
<PAGE>
The Company also leases a warehouse containing
approximately 242,000 square feet in Taunton, Massachusetts, which
is used for the distribution of men's and women's jewelry, leather
goods and other accessories. One of the Company's factory stores
is also located at the Taunton location. The lease for these
premises expires in 2001.
Men's belts and certain other leather accessories are
manufactured in premises consisting of a manufacturing plant and
office space in a 126,500 square foot building, located on
approximately seven and one-half acres, owned by the Company in
Norwalk, Connecticut.
The Company's manufacturing and distribution facilities
are equipped with modern machinery and equipment, substantially all
of which is owned by the Company. In management's opinion, the
Company's properties, machinery and equipment are adequate for the
conduct of the respective businesses to which they relate.
The Company presently operates 16 additional factory
outlet stores at locations other than those described above. These
stores have leases with terms not in excess of five years and
contain in the aggregate approximately 35,000 square feet.
Item 3. Legal Proceedings.
(a) On June 7, 1990, the Company received notice from
the United States Environmental Protection Agency ("EPA") that it,
along with fifteen others, had been identified as a Potentially
Responsible Party ("PRP") in connection with the release of
hazardous substances at a Superfund site located in Massachusetts.
This notice does not constitute the commencement of a proceeding
against the Company nor necessarily indicate that a proceeding
against the Company is contemplated. The Company, along with six
other PRP's, has entered into an Administrative Order pursuant to
which, inter alia, they have undertaken to conduct a remedial
investigation/feasibility study (the "RI/FS") with respect to the
alleged contamination at the site.
It is the position of the PRPs who have undertaken to
perform the RI/FS at the Massachusetts Superfund site that the
remedial investigation has been completed. The PRP Group's
accountant's records reflect group expenses since December 31,
1990, independent of legal fees, in the amount of $1,932,928 as of
December 31, 1997. The Company's share of costs for the RI/FS is
being allocated on an interim basis at 12.5177%.
The Massachusetts Superfund site is adjacent to a
municipal landfill that is in the process of being closed under
Massachusetts law. Due to the proximity of the municipal landfill
to the site and the composition of waste at this site, the issues
are under discussion regarding the site among state and federal
agencies and the United States Department of Energy.
<PAGE>
In September 1988, the Company received notice from the Department
of Pollution Control and Ecology of the State of Arkansas that
the Company, together with numerous other companies, had been
identified as a PRP in connection with the release or threatened
release of hazardous substances from the Diaz Refinery,
Incorporated site in Diaz, Arkansas. The Company has
advised the State of Arkansas that it intends to participate in
negotiations with the Department of Pollution Control and Ecology
through the committees formed by the PRPs. The Company has not
received further communications regarding the Diaz site.
In September 1991, the Company entered into a judicial
consent decree relating to the Western Sand and Gravel site located
in Burrillville and North Smithfield, Rhode Island. The consent
decree was entered on August 28, 1992 by the United States District
Court for the District of Rhode Island. The most likely scenario
cost estimates for remediation of the ground water at the site
range from approximately $2.8 million to approximately $7.8
million. Based on current participation, the Company's share is
7.99% of approximately 75% of the costs.
(b) No material pending legal proceedings were
terminated during the three-month period ended December 31, 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
The executive officers of the Company are as follows:
Name Age Title
Marshall Tulin 80 Chairman of the Board and
Director
John A. Tulin 51 President and Director
James E. Tulin 46 Senior Vice President -
Merchandising and
Director
Richard V. Byrnes, Jr. 38 Senior Vice President -
Operations
Paul Duckett 57 Senior Vice President -
Distribution and Retail
Store Operations
Melvin Goldfeder 61 Senior Vice President - Special
Markets Division
<PAGE>
Eric P. Luft 42 Senior Vice President - Men's
Division
Lewis Valenti 58 Senior Vice President - Women's
Division
Christopher F. Wolf 49 Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
There are no family relationships among any of the
persons listed above or among such persons and the directors of the
Company except that John A. Tulin and James E. Tulin are the sons
of Marshall Tulin.
Marshall Tulin has served as Chairman of the Board since
October 1995. He joined the Company in 1940, was elected a Vice
President in 1954 and President in 1957. Mr. Tulin has served as
a director of the Company since 1956.
John A. Tulin has served as President and Chief Executive
Officer of the Company since October 1995. Mr. Tulin joined the
Company in 1971, was elected a Vice President in 1974, Senior Vice
President in 1979 and Executive Vice President in 1982. He has
served as a director since 1975.
James E. Tulin has been Senior Vice President-
Merchandising since October 1995. For more than five years prior
to October 1995, Mr. Tulin served as a Senior Vice President of the
Company. Mr. Tulin has been a director of the Company since 1985.
Richard V. Byrnes, Jr. has been Senior Vice President-
Operations since October 1995. Mr. Byrnes joined the Company in
December 1991 as a Divisional Vice President of the Crestline
Division and was elected a Vice President in April 1994. Prior to
joining the Company, Mr. Byrnes was a consultant with the
accounting firm of Coopers & Lybrand L.L.P.
Paul Duckett has been Senior Vice President-Distribution
and Retail Store Operations since October 1995. For more than five
years prior to October 1995, Mr. Duckett served as a Senior Vice
President of the Company.
Melvin Goldfeder has been Senior Vice President-Special
Markets Division since October 1995. For more than five years
prior to October 1995, Mr. Goldfeder served as a Senior Vice
President of the Company.
Eric P. Luft has been Senior Vice President-Men's
Division since October 1995. Mr. Luft served as a Divisional Vice
President of the Men's Products Division from June 1989 until
January 1993, when he was elected a Senior Vice President of the
Company.
<PAGE>
Lewis Valenti has been Senior Vice President-Women's
Division since October 1995. For more than five years prior to
October 1995, Mr. Valenti served as a Senior Vice President of the
Company.
Christopher F. Wolf joined the Company as Senior Vice
President, Chief Financial Officer, Treasurer and Secretary in
October 1996. For more than the five years prior to joining the
Company, Mr. Wolf was a partner in the accounting firm of Coopers
& Lybrand L.L.P..
Each officer of the Company serves, at the pleasure of
the Board of Directors, for a term of one year and until his
successor is elected and qualified.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The information called for by this Item 5 with respect to
market information and the number of holders of the Registrant's
Common Stock is incorporated herein by reference to the caption
"Market for the Company's Common Stock and Related Stockholder
Matters" on page 15 of the Company's Annual Report to Stockholders
for the year ended December 31, 1997 (the "1997 Annual Report"),
which is Exhibit 13 to this Annual Report on Form 10-K.
The Company's financing agreements with its lenders prohibit
the payment of cash dividends on the Company's Common
Stock (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated by
reference in Item 7 of this Report). The Company has not paid any
cash dividends on its Common Stock in the last ten years and has no
current expectation that cash dividends will be paid in the
foreseeable future.
Item 6. Selected Financial Data.
The information called for by this Item 6 is incorporated
herein by reference to the information under the caption "Financial
Highlights" on page 1 of the Company's 1997 Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information called for by this Item 7 is
incorporated herein by reference to the information under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 2-5 of the
Company's 1997 Annual Report.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
The information called for by this Item 8 is incorporated
herein by reference to the information under the following captions
on pages 6-15 of the Company's 1997 Annual Report:
I. Consolidated Balance Sheets as of December 31, 1997 and 1996.
II. Consolidated Statements of Operations for each of
the three years ended December 31, 1997, 1996 and 1995.
III. Consolidated Statements of Changes in Stockholders'
Equity for each of the three years ended December 31,
1997, 1996 and 1995.
IV. Consolidated Statements of Cash Flows for each of
the three years ended December 31, 1997, 1996 and 1995.
. Notes to Consolidated Financial Statements.
. Report of Independent Accountants.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information called for by this Item 10 (except for
information as to the Company's executive officers, which
information appears following Part I in this Annual Report on Form
10-K under the caption "Executive Officers of the Registrant") is
incorporated herein by reference to the Company's definitive proxy
statement relating to the Company's 1998 Annual Meeting of
Stockholders filed pursuant to Regulation 14A under the Securities
Act of 1934, as amended (the "1998 Proxy Statement").
<PAGE>
Item 11. Executive Compensation.
The information called for by this Item 11 is
incorporated herein by reference to the 1998 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information called for by this Item 12 is
incorporated herein by reference to the 1998 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information called for by this Item 13 is
incorporated herein by reference to the 1998 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Documents filed as part of this Report
1. Financial Statements filed as part of this Report:
The financial statements of the Company
included on pages 6-15 of the 1997
Annual Report are incorporated herein
by reference to Item 8 of this Annual
Report on Form 10-K.
2. Financial Statement Schedules filed as part of this
Report:
The following financial statement
schedule and the Report of
Independent Accountants thereon are
submitted herewith in response to
Item 14(d) of Part IV of this Annual
Report on Form 10-K:
Report of Independent Accountants on Financial
Statement Schedule
Financial Statement Schedule for years ended
December 31, 1997,1996 and 1995:
II. Valuation and Qualifying Accounts
<PAGE>
(b) Current Reports on Form 8-K during the quarter ended
December 31, 1997
No reports on Form 8-K were filed by the Company during
the last fiscal quarter of the period covered by this Report.
(c) Exhibits
Exhibit Description
3.01 Restated Certificate of Incorporation of the Company
dated May 1, 1987, as amended to date. (The first exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, File No. 1-5354, is incorporated herein by
reference).
3.02 By-Laws of the Company, as amended to date. (Exhibit
3.02 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-5354, is incor-
porated herein by reference).
4.01 Form of Certificate of Designation of the Series A
Participating Preferred Stock and Series B Participating
Preferred Stock. (Exhibit A to Annex 1 to the Proxy
Statement/Prospectus contained in the Company's Registration
Statement, File No.33-19501, filed on January 4, 1988, is
incorporated herein by reference).
4.02 Second Amended and Restated Credit Agreement dated
as of May 24, 1996 between the Company, each of the banks
which is a signatory thereto and The Chase Manhattan Bank (National
Association), as Agent (in such capacity, the "Agent"). (Exhibit
4.02 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-5354, is incorporated
herein by reference).
4.03 Amended and Restated Security Agreement dated as of
May 24, 1996 between the Company and the Agent. (Exhibit
4.03 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, File No. 1-5354, is incorporated
herein by reference).
4.04 Amended and Restated Security Agreement dated as of
May 24, 1996 between Swank Sales International (V.I.), Inc.
and the Agent. (Exhibit 4.04 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, File No.
1-5354, is incorporated herein by reference).
4.05 Open End Indenture of Mortgage, Assignment of Rents,
Security Agreement and Fixture Filing (Connecticut) dated as
of December 22, 1992 ("Connecticut Mortgage") between the Company
and the Agent. (Exhibit 4.06 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, File No.
1-5354, is incorporated herein by reference).
<PAGE>
4.05.1 Modification and Confirmation of the Connecticut
Mortgage dated as of July 20, 1995. (The fourth exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, File No. 1-5354, is incorporated herein by
reference).
4.05.2 Second Modification and Confirmation of the Connecticut
Mortgage dated as of May 24, 1996. (Exhibit 4.05.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incorporated herein by
reference).
4.06 Open End Indenture of Mortgage, Assignment of Rents,
Security Agreement and Fixture Filing (Massachusetts) dated
as of December 22, 1992 ("Massachusetts Mortgage") between the
Company and the Agent. (Exhibit 4.07 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-5354, is incorporated herein by reference).
4.06.1 Modification and Confirmation of the Massachusetts
Mortgage dated as of July 20, 1995. (The fifth exhibit to
the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, File No. 1-5354, is incorporated
herein by reference).
4.06.2 Second Modification and Confirmation of the Massachusetts
Mortgage dated as of May 24, 1996. (Exhibit 4.06.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 1-5354, is incorporated herein by
reference).
4.07 Revolving Credit and Security Agreement dated as of
May 24, 1996 between the Company, each of the lenders which
is a signatory thereto and IBJ Schroder Bank & Trust Company, as
Lender, ACM Agent and Co-Agent. (Exhibit 4.07 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File No. 1-5354, is incorporated herein by reference).
4.08.1 Mortgage and Security Agreement (Massachusetts), dated
as of May 24, 1996, in the maximum principal amount of
$25,000,000, made by the Company to IBJ Schroder Bank &
Trust Company, as ACM Agent for itself and as agent for ratable
benefit of the Lenders. (Exhibit 4.08.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995,
File No. 1-5354, is incorporated herein by reference).
4.08.2 Open End Mortgage, Assignment of Rents and Security
Agreement (Connecticut), dated as of May 24, 1996, in the
maximum principal amount of $25,000,000, made by the Company to IBJ
Schroder Bank & Trust Company, as ACM Agent for itself and as agent
for ratable benefit of the Lenders. (Exhibit 4.08.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incorporated herein by
reference).
<PAGE>
4.08.3 FSC Security Agreement dated May 24, 1996 between Swank
International (V.I.), Inc. and IBJ Schroder Bank and Trust
Company, as Agent. (Exhibit 4.08.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995,
File No. 1-5354, is incorporated herein by reference).
4.08.4 Pledge and Security Agreement dated as of May 24, 1996
between the Company and IBJ Schroder Bank and Trust Company,
as ACM Agent. (Exhibit 4.08.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995,
File No. 1-5354, is incorporated herein by reference).
10.01 Employment Agreement dated June 20, 1991 between
the Company and Marshall Tulin. (Exhibit 10.01 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, File No. 1-5354, is incorporated herein by
reference).+
10.01.1 Amendment dated as of September 1, 1993 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.01.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.01.2 Amendment effective as of October 30, 1995 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.01.2 to the Company's Annual Report on Form 10K for the
fiscal year ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.02 Employment Agreement dated as of January 1, 1990
between the Company and John Tulin. (Exhibit 10-03 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-5354, is incorporated herein by
reference).+
10.02.1 Amendments dated as of September 1, 1993 and September 2,
1993, respectively, between the Company and John Tulin.
(Exhibit 10.02.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.02.2 Amendment dated as of January 1, 1997 to Employment
Agreement between the Company and John Tulin. (Exhibit 10.02.2
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, File No. 1-5354, is incorporated
herein by reference).+
10.03 Employment Agreement dated as of March 1, 1989 between
the Company and James Tulin. (Exhibit 10.05 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-5354, is incorporated herein by
reference).+
<PAGE>
10.03.1 Amendment dated as of January 4, 1990 to Employment
Agreement between the Company and James Tulin. (Exhibit 10.05
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, File No. 1-5354, is incorporated
herein by reference).+
10.03.2 Amendment dated as of September 1, 1993 to Employment
Agreement between the Company and James Tulin. (Exhibit 10.03.2
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-5354, is incorporated
herein by reference).+
10.03.3 Amendment dated as of January 1, 1997 to Employment
Agreement between the Company and James Tulin. (Exhibit 10.03.3
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, File No. 1-5354, is incorporated
herein by reference).+
10.04 1987 Incentive Stock Option Plan of the Company.
(Exhibit 10.05 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.05 Form of Termination Agreement effective January 1, 1996
between the Company and each of the Company's officers
listed on Schedule A thereto. (Exhibit 10.07 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File No. 1-5354, is incorporated herein by reference).+
10.06 Termination Agreement effective October 1, 1996
between the Corporation and Christopher Wolf. (Exhibit 10.08 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is incorporated herein by
reference).+
10.07 Deferred Compensation Plan of the Company dated
as of January 1, 1987. (Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988,
File No. 1-5354, is incorporated herein by reference).+
10.08 Agreement dated as of July 14, 1981 between the
Company and Marshall Tulin, John Tulin and Raymond Vise as
investment managers of the Company's pension plans. (Exhibit
10.12(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1981, File No. 1-5354, is incorporated
herein by reference).
<PAGE>
10.09 The New Swank, Inc. Retirement Plan Trust Agreement
dated as of January 1, 1994 among the Company and
Marshall Tulin, John Tulin and Raymond Vise, as co-trustees.
(Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, File No. 1-5354, is
incorporated herein by reference).
10.10 Plan of Recapitalization of the Company dated as of
September 28, 1987, as amended (Exhibit 2.01 to Post-Effective
Amendment No.1 to the Company's S-4 Registration Statement,
File No.33-19501, filed on February 9, 1988, is incorporated
herein by reference).
10.11 Key Employee Deferred Compensation Plan. (Exhibit 10.17
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.11.1 First Amendment effective January 1, 1997 to Key
Employee Deferred Compensation Plan. (Exhibit 10.14.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is incorporated herein by
reference).+
10.12 1994 Non-Employee Director Stock Option Plan. (Exhibit 10.15
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, File No. 1-5354, is
incorporated herein by reference).+
10.12.1 Stock Option Contracts dated as of December 31, 1994
between the Company and each of Mark Abramowitz and Raymond
Vise. (Exhibit 10.15.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, File No. 1-5354, is
incorporated herein by reference).+
10.12.2 Stock Option Contract dated as of April 20, 1995
between the Company and Raymond Vise. (The third exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, File No. 1-5354, is incorporated herein by
reference).+
10.12.3 Stock Option Contract dated as of April 20, 1995
between the Company and Mark Abramowitz. (The fifth exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, File No. 1-5354, is incorporated herein by
reference).+
10.12.4 Stock Option Contract dated December 12, 1995 between
the Company and John J. Macht. (Exhibit 10.15.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incorporated herein by
reference).+
<PAGE>
10.12.5 Stock Option Contracts dated as of July 31, 1996
between the Company and each of Mark Abramowitz, Raymond Vise
and John J. Macht. (Exhibit 10.15.5 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, File No.
1-5354, is incorporated herein by reference).+
10.13 Stock Option Contracts dated as of April 24, 1997
between the Company and Mark Abramowitz, Raymond Vise and John
J. Macht.*
10.14 Stock Option Contract dated as of October 1, 1996
between the Company and Christopher F. Wolf. (Exhibit 10.16
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-5354, is incorporated herein by
reference).+
10.15 Employment Agreement dated as of October 1, 1996,
between the Company and Christopher F. Wolf. (Exhibit 10.17
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-5354, is incorporated herein by
reference).+
10.16 Letter Agreement effective August 1, 1996 between
the Company and John J. Macht. (Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is incorporated herein by
reference).
13 1997 Annual Report to Stockholders.*
21.01 Subsidiaries of the Company. (Exhibit 22.01 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-5354, is incorporated herein by
reference).
23.01 Consent of independent accountants.*
27 Financial Data Schedule.*
___________________________
*Filed herewith.
+Management contract or compensatory plan or arrangement.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders of Swank, Inc.
Attleboro, Massachusetts
Our report on the consolidated financial statements of Swank,
Inc. has been incorporated by reference in this Form 10-K from
page 15 of the 1997 Annual Report to Stockholders of Swank, Inc.
In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed
in the index on page 10 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 13, 1998
<PAGE>
Swank, Inc.
Schedule II - Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Additions Balance
Beginning Charged End of
of Period to Expense Deductions Period
For the year ended December 31, 1997
<S> <C> <C> <C> <C>
Reserve for Receivables
allowance for doubtful accounts $1,481,000 $92,000 (G) $73,000 (A) $1,500,000
Allowance for cash discounts 176,000 1,427,000 (H) 1,376,000 (B) 227,000
Allowance for customer returns 4,826,000 7,025,000 (F) 6,638,000 (C) 5,213,000
Allowance for cooperative advertising 537,000 1,106,000 (G) 1,187,000 (D) 456,000
Allowance for in-store markdowns 3,443,000 5,717,000 (G) 6,850,000 (E) 2,310,000
Total 10,463,000 15,367,000 16,124,000 9,706,000
Reserve for inventory obsolescence 574,000 439,000 (I) 139,000 (J) 874,000
For the year ended December 31, 1996
Reserve for Receivables
Allowance for doubtful account $1,050,000 $631,000 (G) $200,000 (A) $1,481,000
Allowance for cash discounts 91,000 1,368,000 (H) 1,283,000 (B) 176,000
Allowance for custumer returns 4,504,000 6,528,000 (F) 6,206,000 (C) 4,826,000
Allowance for cooperative advertising 652,000 1,094,000 (G) 1,209,000 (D) 537,000
Allowance for in-store markdowns 2,800,000 6,120,000 (G) 5,477,000 (E) 3,443,000
Total 9,097,000 15,741,000 14,375,000 10,463,000
Reserve for inventory obsolescence 0 574,000 (I) 0 574,000
For the year ended December 31, 1995
Reserve for Receivables
Allowance for doubtful accounts 1,100,000 805,000 (G) 855,000 (A) 1,050,000
Allowance for cash discounts 500,000 1,517,000 (H) 1,926,000 (B) 91,000
Allowance for custumer returns 4,661,000 9,255,000 (F) 9,412,000 (C) 4,504,000
Allowance for cooperative advertising 703,000 1,227,000 (G) 1,278,000 (D) 652,000
Allowance for in-store markdowns 2,520,000 6,121,000 (G) 5,841,000 (E) 2,800,000
Total 9,484,000 18,925,000 19,312,000 9,097,000
(A) Bad debts charged off as uncollectible, net of reserves.
(B) Cash discounts taken by customers.
(C) Customer returns.
(D) Credits issued to customers for cooperative advertising.
(E) Credits issued to customers for in-store markdowns.
(F) Net reduction in sales and cost of sales.
(G) Located in selling and administrative.
(H) Located in net sales.
(I) Located in cost of sales.
(J) Inventory charged off.
</TABLE>
<PAGE>
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.
Date: March 30, 1998 SWANK, INC.
(Registrant)
By: /s/ Christopher F. Wolf
Christopher F. Wolf
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ John A. Tulin President and Director
John A. Tulin (principal executive officer) March 30, 1998
/s/ Christopher F. Wolf Senior Vice President,
Christopher F. Wolf Chief Financial Officer,
Treasurer and Secretary March 30, 1998
(principal financial and
accounting officer)
/s/ Mark Abramowitz Director March 30, 1998
Mark Abramowitz
/s/ John J. Macht Director March 30, 1998
John J. Macht
<PAGE>
Signature Title Date
/s/ James E. Tulin Director March 30, 1998
James E. Tulin
/s/ Marshall Tulin Director March 30, 1998
Marshall Tulin
/s/ Raymond Vise Director March 30, 1998
Raymond Vise
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997
SWANK, INC.
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
No.
3.01 Restated Certificate of Incorporation of the
Company dated May 1, 1987, as amended to date.
(The first exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1995, File No. 1-5354, is
incorporated herein by reference).
3.02 By-Laws of the Company, as amended to date.
(Exhibit 3.02 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incor-
porated herein by reference).
4.01 Form of Certificate of Designation of the
Series A Participating Preferred Stock and
Series B Participating Preferred Stock.
(Exhibit A to Annex 1 to the Proxy
Statement/Prospectus contained in the Com-
pany's Registration Statement, File No.33-
19501, filed on January 4, 1988, is
incorporated herein by reference).
4.02 Second Amended and Restated Credit Agreement
dated as of May 24, 1996 between the Company,
each of the banks which is a signatory thereto
and The Chase Manhattan Bank (National
Association), as Agent (in such capacity, the
"Agent"). (Exhibit 4.02 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 1-5354, is
incorporated herein by reference).
4.03 Amended and Restated Security Agreement dated
as of May 24, 1996 between the Company and the
Agent. (Exhibit 4.03 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incor-
porated herein by reference).
4.04 Amended and Restated Security Agreement dated
as of May 24, 1996 between Swank Sales
International (V.I.), Inc. and the Agent.
(Exhibit 4.04 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incor-
porated herein by reference).
<PAGE>
4.05 Open End Indenture of Mortgage, Assignment of
Rents, Security Agreement and Fixture Filing
(Connecticut) dated as of December 22, 1992
("Connecticut Mortgage") between the Company
and the Agent. (Exhibit 4.06 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-5354, is
incorporated herein by reference).
4.05.1 Modification and Confirmation of the
Connecticut Mortgage dated as of July 20,
1995. (The fourth exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, File No. 1-5354, is
incorporated herein by reference).
4.05.2 Second Modification and Confirmation
of the Connecticut Mortgage dated as of May
24, 1996. (Exhibit 4.05.2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 1-5354, is
incorporated herein by reference).
4.06 Open End Indenture of Mortgage, Assignment of
Rents, Security Agreement and Fixture Filing
(Massachusetts) dated as of December 22, 1992
("Massachusetts Mortgage") between the Company
and the Agent. (Exhibit 4.07 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-5354, is
incorporated herein by reference).
4.06.1 Modification and Confirmation of the
Massachusetts Mortgage dated as of July 20,
1995. (The fifth exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, File No. 1-5354, is
incorporated herein by reference).
4.06.2 Second Modification and Confirmation
of the Massachusetts Mortgage dated as of May
24, 1996. (Exhibit 4.06.2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 1-5354, is
incorporated herein by reference).
4.07 Revolving Credit and Security Agreement dated
as of May 24, 1996 between the Company, each
of the lenders which is a signatory thereto
and IBJ Schroder Bank & Trust Company, as
Lender, ACM Agent and Co-Agent. (Exhibit 4.07
to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995,
File No. 1-5354, is incorporated herein by
reference).
<PAGE>
4.08.1 Mortgage and Security Agreement
(Massachusetts), dated as of May 24, 1996, in
the maximum principal amount of $25,000,000,
made by the Company to IBJ Schroder Bank &
Trust Company, as ACM Agent for itself and as
agent for ratable benefit of the Lenders.
(Exhibit 4.08.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incor-
porated herein by reference).
4.08.2 Open End Mortgage, Assignment of
Rents and Security Agreement (Connecticut),
dated as of May 24, 1996, in the maximum
principal amount of $25,000,000, made by the
Company to IBJ Schroder Bank & Trust Company,
as ACM Agent for itself and as agent for
ratable benefit of the Lenders. (Exhibit
4.08.2 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31,
1995, File No. 1-5354, is incorporated herein
by reference).
4.08.3 FSC Security Agreement dated May 24,
1996 between Swank International (V.I.), Inc.
and IBJ Schroder Bank and Trust Company, as
Agent. (Exhibit 4.08.2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 1-5354, is
incorporated herein by reference).
4.08.4 Pledge and Security Agreement dated
as of May 24, 1996 between the Company and IBJ
Schroder Bank and Trust Company, as ACM Agent.
(Exhibit 4.08.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incor-
porated herein by reference).
10.01 Employment Agreement dated June 20,
1991 between the Company and Marshall Tulin.
(Exhibit 10.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1991, File No. 1-5354, is
incorporated herein by reference).+
10.01.1 Amendment dated as of September 1, 1993 to
Employment Agreement between the Company and
Marshall Tulin. (Exhibit 10.01.1 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, File No.
1-5354, is incorporated herein by reference).+
<PAGE>
10.01.2 Amendment effective as of October 30, 1995 to
Employment Agreement between the Company and
Marshall Tulin. (Exhibit 10.01.2 to the
Company's Annual Report on Form 10K for the
fiscal year ended December 31, 1996, File No.
1-5354, is incorporated herein by reference).+
10.02 Employment Agreement dated as of
January 1, 1990 between the Company and John
Tulin. (Exhibit 10-03 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-5354, is
incorporated herein by reference).+
10.02.1 Amendments dated as of September 1, 1993 and
September 2, 1993, respectively, between the
Company and John Tulin. (Exhibit 10.02.1 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File
No. 1-5354, is incorporated herein by
reference).+
10.02.2 Amendment dated as of January 1, 1997 to
Employment Agreement between the Company and
John Tulin. (Exhibit 10.02.2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.03 Employment Agreement dated as of
March 1, 1989 between the Company and James
Tulin. (Exhibit 10.05 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-5354, is
incorporated herein by reference).+
10.03.1 Amendment dated as of January 4, 1990 to
Employment Agreement between the Company and
James Tulin. (Exhibit 10.05 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, File No. 1-5354, is
incorporated herein by reference).+
10.03.2 Amendment dated as of September 1, 1993 to
Employment Agreement between the Company and
James Tulin. (Exhibit 10.03.2 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
<PAGE>
10.03.3 Amendment dated as of January 1, 1997 to
Employment Agreement between the Company and
James Tulin. (Exhibit 10.03.3 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No.
1-5354, is incorporated herein by reference).+
10.04 1987 Incentive Stock Option Plan of
the Company. (Exhibit 10.05 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.05 Form of Termination Agreement
effective January 1, 1996 between the Company
and each of the Company's officers listed on
Schedule A thereto. (Exhibit 10.07 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No.
1-5354, is incorporated herein by reference).+
10.06 Termination Agreement effective
October 1, 1996 between the Corporation and
Christopher Wolf. (Exhibit 10.08 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No.
1-5354, is incorporated herein by reference).+
10.07 Deferred Compensation Plan of the
Company dated as of January 1, 1987. (Exhibit
10.12 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31,
1988, File No. 1-5354, is incorporated herein
by reference).+
10.08 Agreement dated as of July 14, 1981
between the Company and Marshall Tulin, John
Tulin and Raymond Vise as investment managers
of the Company's pension plans. (Exhibit
10.12(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1981, File No. 1-5354, is incorporated
herein by reference).
10.09 The New Swank, Inc. Retirement Plan
Trust Agreement dated as of January 1, 1994
among the Company and Marshall Tulin, John
Tulin and Raymond Vise, as co-trustees.
(Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-5354, is
incorporated herein by reference).
<PAGE>
10.10 Plan of Recapitalization of the
Company dated as of September 28, 1987, as
amended (Exhibit 2.01 to Post-Effective
Amendment No.1 to the Company's S-4
Registration Statement, File No.33-19501,
filed on February 9, 1988, is incorporated
herein by reference).
10.11 Key Employee Deferred Compensation
Plan. (Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.11.1 First Amendment effective January 1, 1997 to
Key Employee Deferred Compensation Plan.
(Exhibit 10.14.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.12 1994 Non-Employee Director Stock
Option Plan. (Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, File No. 1-5354, is
incorporated herein by reference).+
10.12.1 Stock Option Contracts dated as of December 31,
1994 between the Company and each of Mark
Abramowitz and Raymond Vise. (Exhibit 10.15.1
to the Company's Annual Report on Form
10-K for the fiscal year ended December 31,
1994, File No. 1-5354, is incorporated herein
by reference).+
10.12.2 Stock Option Contract dated as of April 20,
1995 between the Company and Raymond Vise.
(The third exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1995, File No. 1-5354, is incor-
porated herein by reference).+
10.12.3 Stock Option Contract dated as of April 20,
1995 between the Company and Mark Abramowitz.
(The fifth exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1995, File No. 1-5354, is incor-
porated herein by reference).+
10.12.4 Stock Option Contract dated December 12, 1995
between the Company and John J. Macht.
(Exhibit 10.15.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is
incorporated herein by reference).+
<PAGE>
10.12.5 Stock Option Contracts dated as of July 31,
1996 between the Company and each of Mark
Abramowitz, Raymond Vise and John J. Macht.
(Exhibit 10.15.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.13 Stock Option Contracts dated as of
April 24, 1997 between the Company and Mark
Abramowitz, Raymond Vise and John J. Macht.*
10.14 Stock Option Contract dated as of
October 1, 1996 between the Company and
Christopher F. Wolf. (Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No.
1-5354, is incorporated herein by reference).+
10.15 Employment Agreement dated as of
October 1, 1996, between the Company and
Christopher F. Wolf. (Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No.
1-5354, is incorporated herein by reference).+
10.16 Letter Agreement effective August 1,
1996 between the Company and John J. Macht.
(Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is
incorporated herein by reference).
13 1997 Annual Report to Stockholders.*
21.01 Subsidiaries of the Company. (Exhibit
22.01 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31,
1992, File No. 1-5354, is incorporated herein
by reference).
23.01 Consent of independent accountants.*
27 Financial Data Schedule.*
___________________________
*Filed herewith.
+Management contract or compensatory plan or arrangement.
EXHIBIT 10.13
<PAGE>
SWANK, INC.
1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION CONTRACT
THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 24th day of April 1997, between Swank, Inc., a Delaware
corporation (the "Company"), and Mark Abramowitz (the
"Optionee").
W I T N E S S E T H
1. The Company, in accordance with the terms and conditions
of the 1994 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of April 24, 1997 to the Optionee an option
to purchase an aggregate of 5,000 shares of the Common Stock, $.10
par value per share, of the Company ("Common Stock"), at $.78125
per share, being 100% of the fair market value of such shares of
Common Stock on such date.
2. The term of this option shall be 5 years from April 24,
1997, subject to earlier termination as provided in this Contract
and in the Plan. This option shall be immediately exercisable as
to 100% of the number of shares of Common Stock subject hereto.
3. This option shall be exercised by giving written notice
to the Company at its principal office, presently 6 Hazel Street,
Attleboro, Massachusetts 02703-0962, Attention: Treasurer, stating
that the Optionee is exercising this stock option, specifying the
number of shares being purchased and accompanied by payment in full
of the aggregate purchase price thereof in cash or by check. In no
event may a fraction of a share of Common Stock be purchased under
this option.
4. Notwithstanding the foregoing, and without limiting the
provisions of paragraph 11 of the Plan, this option shall not be
exercisable by the Optionee unless (a) a registration statement
under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the shares of Common stock to be received upon the
exercise of the option shall be effective and current at the time
of exercise or (b) there is an exemption from registration under
the Securities Act for the issuance of the shares of Common Stock
upon exercise. At the request of the Board of Directors, the
Optionee shall execute and deliver to the Company his
representation and warranty, in form and substance satisfactory to
the Board of Directors, that the shares of Common Stock to be
issued upon the exercise of the option are being acquired by the
Optionee for his own account, for investment only and not with a
view to the resale or distribution thereof without the meaning of
the Securities Act. Nothing herein shall be construed so as to
obligate the Company to register the shares subject to the option
under the Securities Act.
<PAGE>
5. Notwithstanding anything herein to the contrary, if at
any time the Board of Directors shall determine, in its discretion,
that the listing or qualification of the shares of Common Stock
subject to this option on any securities exchange or under any
applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of an option, or the issue of shares
of Common Stock thereunder, this option may not be exercised in
whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors, in its
discretion.
6. Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.
7. The Company may endorse or affix appropriate legends
upon the certificates for shares of Common Stock issued upon
exercise of this option and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it
determines, in its discretion, to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the
registration requirement of the Securities Act, or (b) implement
the provisions of the Plan or any agreement between the Company and
the Optionee with respect to such shares of Common Stock.
8. The Company and the Optionee agree that they will both
be subject to and bound by all of the terms and conditions of the
Plan, a copy of which is attached hereto and made part hereof. In
the event the Optionee is no longer a director of the Company or in
the event of his death or disability (as defined in the Plan), his
rights hereunder shall be governed by and be subject to the
provisions of the Plan. In the event of a conflict between the
terms of this Contract and the terms of the Plan, the terms of the
Plan shall govern.
9. The Optionee represents and agrees that he will comply
with all applicable laws relating to the Plan and the grant and
exercise of the option and the disposition of the shares of Common
Stock acquired upon exercise of the option, including without
limitation, federal state securities and "blue sky" laws.
10. This option is not transferrable otherwise than by will
or the laws of descent and distribution and may be exercised,
during the lifetime of the Optionee, only by him or his legal
representatives.
11. This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir,
distributee, executor, administrator or legal representative
entitled under the Plan and by law to the Optionee's rights
hereunder.
<PAGE>
12. This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.
13. The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.
14. The Optionee agrees that the Company may amend the Plan
and the options granted to the Optionee under the Plan, subject to
the limitations contained in the Plan
IN WITNESS WHEREOF, the parties hereto have executed this
contract as of the day and year first above written.
SWANK, INC.
By: /s/ John Tulin
Its: President
/s/ Mark Abramowitz
Optionee
Parker Chapin Flattau & Klimpl
1211 Avenue of the Americas
Address
New York, NY 10036
<PAGE>
SWANK, INC.
1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION CONTRACT
THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 24th day of April 1997, between Swank, Inc., a Delaware
corporation (the "Company"), and Raymond Vise (the "Optionee").
W I T N E S S E T H
1. The Company, in accordance with the terms and conditions
of the 1994 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of April 24, 1997 to the Optionee an option
to purchase an aggregate of 5,000 shares of the Common Stock, $.10
par value per share, of the Company ("Common Stock"), at $.78125
per share, being 100% of the fair market value of such shares of
Common Stock on such date.
2. The term of this option shall be 5 years from April 24,
1997, subject to earlier termination as provided in this Contract
and in the Plan. This option shall be immediately exercisable as
to 100% of the number of shares of Common Stock subject hereto.
3. This option shall be exercised by giving written notice
to the Company at its principal office, presently 6 Hazel Street,
Attleboro, Massachusetts 02703-0962, Attention: Treasurer, stating
that the Optionee is exercising this stock option, specifying the
number of shares being purchased and accompanied by payment in full
of the aggregate purchase price thereof in cash or by check. In no
event may a fraction of a share of Common Stock be purchased under
this option.
4. Notwithstanding the foregoing, and without limiting the
provisions of paragraph 11 of the Plan, this option shall not be
exercisable by the Optionee unless (a) a registration statement
under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the shares of Common stock to be received upon the
exercise of the option shall be effective and current at the time
of exercise or (b) there is an exemption from registration under
the Securities Act for the issuance of the shares of Common Stock
upon exercise. At the request of the Board of Directors, the
Optionee shall execute and deliver to the Company his
representation and warranty, in form and substance satisfactory to
the Board of Directors, that the shares of Common Stock to be
issued upon the exercise of the option are being acquired by the
Optionee for his own account, for investment only and not with a
view to the resale or distribution thereof without the meaning of
the Securities Act. Nothing herein shall be construed so as to
obligate the Company to register the shares subject to the option
under the Securities Act.
<PAGE>
5. Notwithstanding anything herein to the contrary, if at
any time the Board of Directors shall determine, in its discretion,
that the listing or qualification of the shares of Common Stock
subject to this option on any securities exchange or under any
applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of an option, or the issue of shares
of Common Stock thereunder, this option may not be exercised in
whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors, in its
discretion.
6. Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.
7. The Company may endorse or affix appropriate legends
upon the certificates for shares of Common Stock issued upon
exercise of this option and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it
determines, in its discretion, to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the
registration requirement of the Securities Act, or (b) implement
the provisions of the Plan or any agreement between the Company and
the Optionee with respect to such shares of Common Stock.
8. The Company and the Optionee agree that they will both
be subject to and bound by all of the terms and conditions of the
Plan, a copy of which is attached hereto and made part hereof. In
the event the Optionee is no longer a director of the Company or in
the event of his death or disability (as defined in the Plan), his
rights hereunder shall be governed by and be subject to the
provisions of the Plan. In the event of a conflict between the
terms of this Contract and the terms of the Plan, the terms of the
Plan shall govern.
9. The Optionee represents and agrees that he will comply
with all applicable laws relating to the Plan and the grant and
exercise of the option and the disposition of the shares of Common
Stock acquired upon exercise of the option, including without
limitation, federal state securities and "blue sky" laws.
10. This option is not transferrable otherwise than by will
or the laws of descent and distribution and may be exercised,
during the lifetime of the Optionee, only by him or his legal
representatives.
11. This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir,
distributee, executor, administrator or legal representative
entitled under the Plan and by law to the Optionee's rights
hereunder.
<PAGE>
12. This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.
13. The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.
14. The Optionee agrees that the Company may amend the Plan
and the options granted to the Optionee under the Plan, subject to
the limitations contained in the Plan
IN WITNESS WHEREOF, the parties hereto have executed this
contract as of the day and year first above written.
SWANK, INC.
By: /s/ John Tulin
Its: President
/s/ Raymond Vise
Optionee
8 El Paseo
Address
Irvine, CA 92612-2907
<PAGE>
SWANK, INC.
1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION CONTRACT
THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 24th day of April 1997, between Swank, Inc., a Delaware
corporation (the "Company"), and John J. Macht (the "Optionee").
W I T N E S S E T H
1. The Company, in accordance with the terms and conditions
of the 1994 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of April 24, 1997 to the Optionee an option
to purchase an aggregate of 5,000 shares of the Common Stock, $.10
par value per share, of the Company ("Common Stock"), at $.78125
per share, being 100% of the fair market value of such shares of
Common Stock on such date.
2. The term of this option shall be 5 years from April 24,
1997, subject to earlier termination as provided in this Contract
and in the Plan. This option shall be immediately exercisable as
to 100% of the number of shares of Common Stock subject hereto.
3. This option shall be exercised by giving written notice
to the Company at its principal office, presently 6 Hazel Street,
Attleboro, Massachusetts 02703-0962, Attention: Treasurer, stating
that the Optionee is exercising this stock option, specifying the
number of shares being purchased and accompanied by payment in full
of the aggregate purchase price thereof in cash or by check. In no
event may a fraction of a share of Common Stock be purchased under
this option.
4. Notwithstanding the foregoing, and without limiting the
provisions of paragraph 11 of the Plan, this option shall not be
exercisable by the Optionee unless (a) a registration statement
under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the shares of Common stock to be received upon the
exercise of the option shall be effective and current at the time
of exercise or (b) there is an exemption from registration under
the Securities Act for the issuance of the shares of Common Stock
upon exercise. At the request of the Board of Directors, the
Optionee shall execute and deliver to the Company his
representation and warranty, in form and substance satisfactory to
the Board of Directors, that the shares of Common Stock to be
issued upon the exercise of the option are being acquired by the
Optionee for his own account, for investment only and not with a
view to the resale or distribution thereof without the meaning of
the Securities Act. Nothing herein shall be construed so as to
obligate the Company to register the shares subject to the option
under the Securities Act.
<PAGE>
5. Notwithstanding anything herein to the contrary, if at
any time the Board of Directors shall determine, in its discretion,
that the listing or qualification of the shares of Common Stock
subject to this option on any securities exchange or under any
applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of an option, or the issue of shares
of Common Stock thereunder, this option may not be exercised in
whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors, in its
discretion.
6. Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.
7. The Company may endorse or affix appropriate legends
upon the certificates for shares of Common Stock issued upon
exercise of this option and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it
determines, in its discretion, to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the
registration requirement of the Securities Act, or (b) implement
the provisions of the Plan or any agreement between the Company and
the Optionee with respect to such shares of Common Stock.
8. The Company and the Optionee agree that they will both
be subject to and bound by all of the terms and conditions of the
Plan, a copy of which is attached hereto and made part hereof. In
the event the Optionee is no longer a director of the Company or in
the event of his death or disability (as defined in the Plan), his
rights hereunder shall be governed by and be subject to the
provisions of the Plan. In the event of a conflict between the
terms of this Contract and the terms of the Plan, the terms of the
Plan shall govern.
9. The Optionee represents and agrees that he will comply
with all applicable laws relating to the Plan and the grant and
exercise of the option and the disposition of the shares of Common
Stock acquired upon exercise of the option, including without
limitation, federal state securities and "blue sky" laws.
10. This option is not transferrable otherwise than by will
or the laws of descent and distribution and may be exercised,
during the lifetime of the Optionee, only by him or his legal
representatives.
11. This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir,
distributee, executor, administrator or legal representative
entitled under the Plan and by law to the Optionee's rights
hereunder.
<PAGE>
12. This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.
13. The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.
14. The Optionee agrees that the Company may amend the Plan
and the options granted to the Optionee under the Plan, subject to
the limitations contained in the Plan
IN WITNESS WHEREOF, the parties hereto have executed this
contract as of the day and year first above written.
SWANK, INC.
By: /s/ John Tulin
Its: President
/s/ John Macht
Optionee
The Macht Group
176 Federal St. 5th Floor
Address
Boston, MA 02110
<PAGE> EXHIBIT 13
<PAGE>
SWANK (LOGO)
ANNUAL REPORT
1997
<PAGE>
To Our Shareholders and Friends
Chairman's Message
Last year I wrote to you of my optimism for the future and
I expressed my view that the Company had turned the
corner. In 1997, the emphasis we have been placing on
increasing revenues and earnings clearly began to bear
fruit. Revenues were ahead this year in both men's and
women's products, and it is certainly pleasing to report
1997 pretax earnings, which more than doubled over the
previous year.
I believe that the actions taken by Management to enhance
Swank's portfolio of licensed brands will serve your
Company well in the future. I also continue to see
opportunity in the International Markets, although the
current crisis in Asia may slow growth in that part of the
world. We continue to work to improve our internal
processes and reduce costs, while maintaining the highest
standards of quality and design for our products.
These factors, together with my confidence in Swank's
Management team and our employees, form the basis for my
enthusiastic view of 1998 and beyond.
Sincerely yours,
/s/ Marshall Tulin
Marshall Tulin,
Chairman
February 13, 1998
President's Letter
The second year in Swank's rebuilding process is complete
and we made substantial progress toward achieving our
long-term goal of continuing increases in sales and
profits. Sales grew by 3% in 1997, and pretax income grew
by 125% over last year to $4,848,000, the highest level
since 1992. Income from Operations in 1997 reached a
level which was last attained in 1989.
Gross profit margins were within .5% of last year, so that
earnings benefited directly from the increase in 1997
sales volume. In addition, selling and administrative
expenses decreased both in dollars and as a percentage of
sales.
Our 1997 results were particularly gratifying in light of
the very substantial challenge faced by Swank in
introducing entirely new Collections of Yves Saint
Laurent, Geoffrey Beene and Kenneth Cole men's
accessories. We are quite encouraged by the reaction of
our customers and consumers to these new licensed men's
brands, both in 1997 and thus far in 1998.
We are also pleased by the strengthening we saw in Anne
Klein and Guess? women's jewelry business in the 1997 fall
season. Our existing portfolio of licences should
facilitate our ability to increase our share of the men's
accessory and women's jewelry markets. We will continue
to pursue new license and new market opportunities, both
domestically and internationally, in order to help achieve
our long-term goals for sales and profits.
Of course, the credit for the Company's performance
belongs to our Management and employees. I am grateful
for their efforts, and for those of our Chairman and Board
of Directors. We are very appreciative of the continued
support and loyalty of our customers, suppliers and
stockholders, and will continue to make every effort to
justify their confidence.
Sincerely yours,
/s/ John Tulin
John Tulin,
President and Chief Executive Officer
February 13, 1998
<PAGE>
Financial Highlights
[CAPTION]
For each of the Five Years Ended
December 31
<TABLE>
(In thousands, except share and per share data) 1997 1996 1995 1994 1993
Operating Data:
<S> <C> <C> <C> <C> <C>
Net sales $137,074 $132,642 $140,102 $143,496 $126,770
Cost of goods sold 77,547 74,396 85,774 79,122 69,002
Gross profit 59,527 58,246 54,328 64,374 57,768
Selling and administrative expenses 53,195 54,232 60,193 58,212 53,273
Income (loss) from operations 6,332 4,014 (5,865) 6,162 4,495
Interest charges, net 1,484 1,855 2,085 1,632 1,446
Income (loss) before income taxes and cumulative
effect of a change in accounting for income taxes 4,848 2,159 (7,950) 4,530 3,049
Provision (benefit) for income taxes 1 860 994 (1,042) 256
Income (loss) before cumulative effect of a change
in accounting for income taxes 4,847 1,299 (8,944) 5,572 2,793
Cumulative effect of a change in accounting
for income taxes 477
Net income (loss) $ 4,847 $ 1,299 $ (8,944) $ 5,572 $ 3,270
Share and per share information:
Weighted average common shares
Outstanding 16,378,645 16,053,135 16,135,368 16,234,892 16,411,496
Income (loss) before cumulative effect of a
change in accounting for income taxes $ .30 $ .08 $ (.55) $ .34 $ .17
Cumulative per share effect of a change in
accounting for income taxes .03
Net income (loss) per common share $ .30 $ .08 $ (.55) $ .34 $ .20
Weighted average common shares
outstanding assuming dilution 16,434,541 16,053,135 16,135,368 16,398,008 16,861,097
Income (loss) before cumulative effect of a
change in accounting for income taxes $ .29 $ .08 $ (.55) $ .34 $ .16
Cumulative effect of a change in
accounting for income taxes .03
Net income (loss) per share assuming dilution $ .29 $ .08 $ (.55) $ .34 $ .19
Additions to property, plant and
equipment, net $ 1,139 $ 1,132 $ 2,006 $ 1,000 $ 1,439
Depreciation and amortization $ 2,167 $ 2,027 $ 1,523 $ 1,108 $ 955
Financial Position (In thousands, except per share data)
Current assets $48,840 $37,905 $45,768 $47,258 $43,273
Current liabilities 24,485 18,865 29,218 21,877 19,987
Net working capital 24,355 19,040 16,550 25,381 23,286
Property, plant and equipment, net 6,157 6,760 7,457 6,587 6,695
Total assets 59,949 48,787 57,324 57,458 52,123
Long-term obligations 8,603 8,591 7,573 5,364 7,524
Stockholders' equity 26,861 21,331 20,533 30,217 24,612
Stockholder's equity per weighted average
common share assuming dilution $ 1.63 $ 1.33 $ 1.27 $ 1.84 $ 1.46
</TABLE>
<PAGE>
<TABLE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
<CAPTION>
Percentage Changes
1997 1996 1995 1997-96 1996-95
<S> <C> <C> <C> <C> <C>
Contribution to Net Sales
$ 59,186 $ 55,988 $ 59,271 Men's and Women's Jewelry 6% (6%)
75,098 72,967 74,786 Men's Leather Accessories 3% (2%)
2,790 3,687 6,045 Other Products* (24%) (39%)
$137,074 $132,642 $140,102 Total Net Sales 3% (5%)
Contribution to Gross Profit
$ 29,015 $ 26,054 $ 25,323 Men's and Women's Jewelry 11% 3%
29,077 30,325 27,335 Men's Leather Accessories (4)% 11%
1,435 1,867 1,670 Other Products* (23)% 12%
$ 59,527 $ 58,246 $ 54,328 Total Gross Profit 2% 7%
The table indicates the relative contribution to net sales
and gross profit by principal product categories for each
of the three years ended December 31. The components of
net sales are gross sales less cash discounts, allowances
and customer returns. * Includes the men's accessories
(gifts) line which was discontinued during the fourth
quarter of fiscal 1995 and certain merchandise sold
through factory outlets.
</TABLE>
Results of Operations
The following discussion should be read in conjunction
with the consolidated financial statements and notes,
thereto.
1997 vs. 1996
Net Sales
Net sales for the year ended December 31, 1997, increased
by $4,432,000 from 1996, reversing the downward trend
experienced over the preceding two years. Men's and
Women's Jewelry net sales increased $3,198,000, and Men's
Leather Accessories' net sales increased $2,131,000, while
net sales of Other Products decreased $897,000 for the
year. After over two years of a lackluster retail
environment for fashion accessories there are some
indications that conditions are becoming more favorable.
The market for Women's Jewelry strengthened during the
just concluded Fall season. In addition, management
believes that net sales gains resulted from improved
merchandising in the Company's Women's lines. Market
reaction to the Company's new Men's designer lines: Yves
Saint Laurent, Geoffrey Beene and Kenneth Cole has been
very encouraging. Net sales in 1997 benefited from the
initial distribution of products in the Company's new
Men's designer lines. However, net sales during the first
half of 1997 may have been adversely affected by a
reduction in orders for established products by certain
retailers due to their desire for these new collections.
Management anticipates that the strength of the new brands
will be of ongoing benefit to the Company.
Net sales at the Company's factory outlets constituted
less than 5% of consolidated net sales during 1997, down
from over 6% last year. Same store sales increased
slightly. The Company closed eight unprofitable stores in
1997 leaving seventeen still in operation. No further
closings are presently planned, although management
continues to assess the performance of each store.
Management believes that factory outlets remain a valuable
distribution channel for the disposition of excess and/or
discontinued inventory.
As described in Note B to the accompanying consolidated
financial statements, the Company reduces sales and cost
of sales by the estimated effect of future returns of
current period shipments. Overall returns experience in
1997 was approximately the same as in the previous year,
exclusive of incremental returns directly associated with
transitions to the new Men's designer lines. As described
further below, the 1996 financial statements included
provisions for returns and in-store markdowns (the latter
designed to minimize returns) specifically associated with
retail transitions to the new Men's designer lines. The
difference between these provisions and the actual costs
incurred had no material effect on the Company's 1997
financial statements. Each Spring, upon completion of
processing returns from the preceding Fall season, the
Company records adjustments to net sales to reflect 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
were as follows:
Increase (decrease) in net sales -
(in thousands) 1997 1996 Change
Men's and Women's Jewelry $292 $1,059 $(767)
Men's Leather Accessories 752 188 564
Other Products (3) 138 (141)
Increase in Net Sales $1,041 $1,385 $(344)
Gross Profit
Gross profit for the year ended December 31, 1997
increased $1,281,000, or 2.2%, principally as a result of
increased net sales. Gross profit margins expressed as a
percentage of net sales decreased slightly to 43.4% from
43.9% last year, primarily as a result of increased
royalties to licensors which are included in cost of
sales. During 1996, the Company entered into extensions
and/or modifications of its principal existing licenses
for designer names and executed agreements for important
new ones.
Men's and Women's Jewelry gross profit increased
$2,961,000 for the year ended December 31, 1997,
principally from increased net sales of Women's Jewelry,
favorable product mix and continued focus on markups.
Men's Leather Accessories gross profit decreased
$1,248,000, due primarily to increased product costs for
small leather goods and also the effects of increased
royalties as described above. Gross profit for Other
Products, which include certain merchandise sold through
the Company's factory outlets, decreased $432,000 on lower
net sales.
Gross profit includes 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.
Increase (decrease) in gross profit -
(in thousands) 1997 1996 Change
Men's & Women's Jewelry $210 $674 $(464)
Men's Leather Accessories 476 72 404
Other (2) 310 (312)
Increase in Gross Profit $684 $1,056 $(372)
Selling and Administrative Expenses
Selling and administrative expenses decreased $1,037,000,
or 1.9%, for the year and, expressed as a percentage of
sales, decreased from 40.9% to 38.8%. Selling expenses
generally grew proportionately with the increase in net
<PAGE>
sales. Advertising and promotion expenses (see table under
"Promotional Expenses" below) decreased by about
$232,000. In-store markdowns in 1996 included a provision
of approximately $1,000,000 to minimize customer returns
in connection with the 1997 transition in Men's designer
lines. Administrative expenses benefited in 1997 from a
decrease in the provision for bad debts of approximately
$539,000 following favorable bad debts experience. In
addition, the expenses required to reflect the appropriate
liabilities for environmental and other long-term
obligations decreased in 1997 by approximately $400,000
and $650,000, respectively.
Interest Expense
Interest expense decreased $371,000, or 20%, for the year
although the weighted average interest rate was slightly
higher than the prior year. Monthly average borrowing
levels were lower than in 1996. The Company entered 1997
with no outstanding balance on its revolving credit
financing and did not commence substantial borrowings
until late in February 1997.
Provision for Income Taxes
An income tax benefit of $2,389,000 was recognized in 1997
upon the elimination of the remainder of the valuation
allowance against deferred tax assets which had been
established in 1995. This adjustment offset the income tax
expense associated with the current year's pretax income
and resulted in a net provision for income taxes of only
$1,000 for the year. Management believes that the
Company's history of profitable performance and the
actions it has undertaken to enhance future performance
enable the Company to meet the criteria for assuming that
it is more likely than not that deferred tax assets will
be realized from future taxable income.
In 1996, the Company recorded an income tax provision at a
combined federal and state effective tax rate of 39.8%,
which approximated the combined statutory rate. The Health
Insurance and Accountability Act of 1996 eliminates the
deduction of interest on policy loans on a significant
portion of the Company's corporate owned life insurance
(See Note F to the financial statements) by 1999 and,
therefore, substantially increases the after tax cost of
maintaining these policies. The Company is not committed
to maintaining the affected policies and, unless a better
strategy emerges, expects to surrender these policies in
1998. A deferred income tax liability was established in
1996 for the income taxes on the previously untaxed
increases in policy values that will become due over a
four year period upon surrender of the policies. The 1997
and 1996 increases in policy values have been treated as
temporary differences. The Company established a
valuation allowance in the fourth quarter of 1995 to
reduce deferred tax assets to a level management believed
more likely than not will be realized. The expectation in
1996 of additional future taxable income from the
surrender of the insurance policies reduced the
requirement for a valuation allowance by an equivalent
amount and the incremental deferred taxes recorded in 1996
did not alter that year's effective rate.
Net Income Per Share
In 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which
replaced primary and fully diluted earnings per share with
"basic" and "diluted" earnings per share. Net income
(loss) per common share or basic earnings per share are
determined without regard to options which were formerly
included as common stock equivalents in the computation of
primary earnings per share. Net income (loss) per share
assuming full dilution includes the effects of options.
All net income (loss) per share amounts are adjusted to
include, where appropriate, shares held by the Company's
employee stock ownership plan and deemed to be allocated
to participants and have been restated, as appropriate,
for all periods presented.
1996 vs. 1995
Net Sales
Net sales for the year ended December 31, 1996, decreased
by $7,460,000 from 1995. Men's and Women's Jewelry net
sales decreased $3,283,000. Men's Leather Accessories' net
sales decreased $1,819,000 and Other net sales decreased
$2,358,000 for the year. Gross shipments declined from the
prior year's level in each line, including the effect of
lower volume at the Company's factory outlets as further
discussed below. The market for Women's Jewelry continued
to be difficult due to a lackluster retail environment for
fashion accessories and emphasis on competitively priced,
career oriented products. In addition, all product lines
have been affected by the continuing consolidation among
major retailers. A change in distribution channels
announced by one of the Company's principal licensors of
men's products has prompted the Company to introduce,
commencing in 1997, new men's designer lines. Net sales
of Men's Leather Accessories in 1996 have been reduced by
anticipated additional returns in connection with the
pending product transition.
Net sales at the Company's factory outlets declined 27%
for the year ended December 31, 1996 and constituted
approximately 6% of net sales for the year. Same store
sales declined approximately 4% and sales decreased
approximately 23% as a result of the closure of fifteen
unprofitable stores in 1996. An additional 3 stores were
closed in January 1997. The Company believes that factory
outlets are still a valuable distribution channel for the
disposition of excess and/or discontinued inventory and
continues to assess the performance of each store.
As described in Note B to the financial statements, the
Company reduces sales and cost of sales by the estimated
effect of future returns of current period shipments.
Overall returns experience in 1996 was generally more
favorable than last year. In 1995, the Company shifted
emphasis on women's jewelry from higher margin fashion
products to more competitively priced career oriented
products. This action produced heavier returns due to the
necessity of changing the merchandise presentation at the
store level. Each Spring, upon completion of processing
returns from the preceding Fall season, the Company
records adjustments to net sales to reflect the difference
in actual sales returns versus the estimates accrued at
the end of the preceding year. These adjustments were as
follows:
Increase (decrease) in net sales -
(in thousands) 1996 1995 Change
Men's & Women's Jewelry $1,059 ($1,642) $2,701
Men's Leather Accessories 188 (37) 225
Other 138 (312) 450
Increase (decrease)
in Net Sales $1,385 ($1,991) $3,376
Gross Profit
Gross profit for the year ended December 31, 1996
increased $3,918,000, or 7.2%. Gross profit expressed as a
percentage of net sales increased to 43.9% from 38.8%.
Increased margins in 1996 are attributable to reductions
in product costs and lower costs associated with the
reduced level of customer returns. As part of an effort
to enhance margins and respond to the competitive price
pressures in the fashion goods industry, the Company
increased its utilization of off-shore and domestic
manufacturing suppliers for sourcing certain of its
products. In addition, the Company initiated continuing
programs to make its factories more competitive through
reductions in overhead and through improvements in various
processes. The Company's asset management program enabled
it to maintain lower inventory levels throughout 1996
which resulted in significantly reduced costs associated
with inventory shortages, obsolescence and markdowns
compared to 1995. More favorable returns experience also
contributed to a reduction
<PAGE>
in inventory handling costs. Royalties to licensors
of the Company's designer names are included
in cost of sales. During 1996, the Company
entered into extensions and/or modifications of its
principal existing licenses and executed agreements for
important new ones. The Company is likely to incur
increases in future royalty expense as a result of these
agreements. However, management believes that the benefits to
be derived from these licenses will offset the incremental costs.
The Company's gross profit in 1995 was depressed by increased
markdowns needed to dispose of excess inventory, higher
production costs and an unfavorable product mix.
Men's and Women's Jewelry gross profit increased $731,000
for the year ended December 31, 1996, in spite of
decreased net sales, and Men's Leather Accessories gross
profit increased $2,990,000, also on reduced net sales.
Both increases were primarily attributable to the
reductions in product costs discussed in the preceding
paragraph as well as favorable returns experience. Gross
profit for Other lines, which include certain merchandise
sold through the Company's factory outlets and, in 1995,
included residual sales of items in the Company's
discontinued men's accessories (gift) lines increased
$197,000.
Gross profit includes adjustments relating to customer
returns that reflect the differences between amounts
estimated at the end of the preceding year and actual
returns as follows. The incremental 1996 year end
provision for returns associated with the transition in
Men's designer lines substantially offset the aggregate
benefit realized earlier in the year.
Increase (decrease) in gross profit -
(in thousands) 1996 1995 Change
Men's & Women's Jewelry $674 ($990) $1,664
Men's Leather Accessories 72 2 70
Other 310 (172) 482
Increase (decrease)
in Gross Profit $1,056 ($1,160) $2,216
Selling and Administrative Expenses
Selling and administrative expenses decreased $5,961,000,
or 9.9% for the year and, expressed as a percentage of
sales, decreased from 43.0% to 40.9%. Compensation and
related fringe benefits decreased by approximately
$2,999,000, net of an increase in the contribution to the
Company's retirement plan of approximately $990,000.
Personnel reductions and lower commission rates were
initiated late in 1995 as part of the Company's cost
reduction program. Advertising and promotion expenses
(see table under "Promotional Expenses" below) decreased
by $1,472,000 in 1996, primarily due to reduced
expenditures on displays, fixtures, and national
advertising. In-store markdowns in 1996 include a
provision of approximately $1,000,000 to be utilized
during the first half of 1997 to minimize customer returns
in connection with the transition in Men's designer lines.
In 1995, advertising and promotion included display and
refixturing costs associated with the change in Women's
Jewelry from fashion to competitively priced products at
the store level, costs of the Company's efforts to
penetrate new markets and expand market share, and in-
store markdowns given to retailers demanding more
promotional activity in a sluggish retail environment. The
provision for bad debts decreased by $174,000. Additional
expense was recognized in 1995 after one of the Company's
customers filed reorganization proceedings in January
1996.
Interest Expense
Interest expense decreased $230,000, or 11%, for the year
even though the weighted average interest rate was
slightly higher than the prior year. Borrowing levels in
the last half of 1996 were lower because of increased
focus on asset management, particularly inventories, and
reduced requirements to finance accounts receivable in a
period of lower net sales.
Promotional Expenses
Substantial expenditures for advertising and promotion are
necessary to enhance the Company's business and minimum
expenditures are increasingly required by the Company's
licensors. Advertising and promotion expenses decreased by
$232,000 in 1997 primarily because of the additional
provision for in-store markdowns in 1996, as described
below. Advertising and promotion expenses decreased by
$1,472,000 in 1996 primarily due to reduced expenditures
on displays, fixtures, and national advertising. This
decrease is net of a provision of approximately $1,000,000
recorded in 1996 for additional in-store markdowns
expected during the first half of 1997 to minimize
customer returns in connection with the transition in
Men's designer lines. In 1995, the Company adjusted its
women's jewelry inventory presentation at the retail level
to put more emphasis on competitively priced career-
oriented merchandise. This change, combined with the
Company's efforts to penetrate new distribution channels
and increase market share in a sluggish retail
environment, required substantial promotional activity.
The table below summarizes the various promotional
expenses incurred by the Company.
1997 1996 1995
In-store markdowns $5,442 $6,120 $6,121
Co-op advertising 1,106 1,095 1,227
Displays 1,357 932 1,620
National advertising and other 1,114 1,104 1,755
Total $9,019 $9,251 $10,723
Percentage of net sales 6.6% 7.0% 7.7%
Interest Charges
The average monthly amount of short-term borrowings and
related weighted average interest rates were,
respectively, $8,296,000 and 10.78% in 1997, $13,218,000
and 10.44% in 1996, and $18,266,000 and 10.32% in 1995.
Liquidity and Capital Resources
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.
In 1997, stocking to support the addition of three new
licensed brands and anticipated increases in customer
demand combined to increase inventory at December 31,
1997 by $8,597,000 over the preceding year end. In 1996,
inventory decreased $6,800,000 from December 31, 1995,
primarily as a result of improved management to align
inventories more closely with sales, increased sales of
excess inventory, discontinuing the sale and distribution
of the men's accessories (gifts) product line in 1995, and
a reduction in the number of retail outlets.
Cash Flows. Cash used by operations in 1997 totaled
$6,131,000, primarily from increased investments in
inventory and accounts receivable which were only partly
offset by 1997 net income and depreciation and
amortization. In 1996, cash provided by operations was
$15,386,000 of which 44% was attributable to decreased
inventory and the remainder consisted primarily of net
income, depreciation and amortization and a reduction in
accounts receivable. Working capital increased by
approximately $5,315,000 in 1997 and by $2,490,000 in
1996. Cash used in investing activities for capital
expenditures was $1,072,000 in 1997 and $1,070,000
<PAGE>
in 1996. Financing activities provided $5,567,000 in cash in
1997 through an increase in short-term borrowings which
exceeded principal repayments on long-term obligations.
Financing activities used $12,566,000 in 1996, consisting
primarily of repayments of borrowings under revolving
credit agreements and debt issuance costs.
Financing Arrangements. The Company obtained revolving
credit financing on May 24, 1996 from IBJ Schroder Bank &
Trust Company, as agent (the "Lenders") for up to
$25,000,000 with a sublimit of $3,000,000 in letters of
credit (the "Revolving Credit Agreement"). The proceeds of
the Revolving Credit Agreement were used, in part, to
repay all but $4,000,000 of the outstanding balance under
a 1995 Agreement with other banks as further described
below.
The Revolving Credit Agreement is available through April
1999 and is collateralized by all of the Company's assets.
The Lenders have a senior lien position on all assets
other than real property, improvements and certain
fixtures, in which the other banks maintain a senior
position to collateralize a Term Loan, as described below,
and in which the Lenders have a subordinate lien. The
Revolving Credit Agreement permits the Company to borrow
against a percentage of eligible accounts receivable and
inventory and its loans bear an interest rate of 1.5% over
the Lenders' prime lending rate. The Revolving Credit
Agreement also contains a facility fee of 1/2% per annum on
the unused portion of the revolving credit facility and a
closing fee of $500,000 was paid at the closing date.
The terms of the Revolving Credit Agreement include
covenants requiring the Company to maintain certain
financial ratios including interest coverage, leverage and
quarterly inventory turnover. The Revolving Credit
Agreement also includes covenants limiting capital
expenditures and additional indebtedness and requiring
profitability. The Company believes the inventory turnover
covenant to be the most restrictive, requiring minimum
inventory turnover, as defined, up to 2.25 times annually.
The Revolving Credit Agreement also prohibits the payment
of dividends. Management believes this credit facility
will meet the Company's working capital needs until May,
1999.
In connection with the refinancing, the other banks
amended and restated the 1995 Agreement (described below)
to provide the Company with a $4,000,000 term loan (the
"Term Loan") in lieu of a like amount of revolving credit
debt then outstanding under the 1995 Agreement. The Term
Loan is payable in $200,000 quarterly increments which
began in June 1997 with a final payment of the balance in
May 1999, if not prepaid earlier pursuant to annual
prepayments based on excess cash flow, as defined. The
Company prepaid $705,000 in 1997 and is required to prepay
an additional amount of approximately $625,000 by March
31, 1998. The Term Loan bears interest at 2.5% over the
other banks' prime lending rate and is collateralized by a
senior lien on real property and certain improvements and
a subordinate lien on all other assets. The Term Loan also
contains an annual facility fee of 2% of the Term Loan and
a maximum success fee of $450,000 of which $225,000 is
payable at maturity and the balance is payable in six
equal monthly installments thereafter. The Term Loan
incorporates the covenants contained in the Revolving
Credit Agreement.
The financing agreements include provisions specifying
that a material adverse effect, as determined by the
lenders, in the financial position or results of
operations of the Company is an event of default. As such,
the portion of the Term Loan which would otherwise be
classified as long-term has been classified as current in
the Company's balance sheets at December 31, 1997 and
1996. Based upon present information and the Company's
operating plans for fiscal 1998, the Company expects that
it will continue to meet the financial covenants contained
in the Revolving Credit and Term Loan Agreements and that
eligible assets will provide a sufficient borrowing base
to meet the Company's seasonal working capital needs for
1998.
During 1995, a revolving credit agreement, as modified,
with other banks (the "1995 Agreement") provided loans and
letters of credit in an amount up to $32,000,000 at prime
plus 2.5%. Due primarily to the Company's net loss in
fiscal 1995 and the resulting failure of the Company to
meet various financial covenants under the 1995 Agreement,
the banks requested that the Company investigate
alternative sources of working capital.
Environmental Matters
Environmental expenditures that relate to current
operations are expensed or capitalized, as appropriate.
Expenditures that relate to an existing condition caused
by past operations, and which do not contribute to current
or future revenue generation, are expensed. In 1997, the
Company adopted Statement of Position 96-1, "Environmental
Remediation Liabilities" ("SOP 96-1"), issued by the
American Institute of Certified Public Accountants. SOP
96-1 provides guidance on the recognition of expenses
related to environmental remediation activities and the
related financial statement disclosures. Adoption of SOP
96-1 did not have a material effect on the Company's
financial statements. Liabilities are recorded when
environmental assessments and/or remedial efforts are
probable and the costs can be reasonably estimated.
Generally, adjustments to these accruals coincide with the
completion of a feasibility study or the Company's
commitment to a formal plan of action or other appropriate
benchmark.
Capital Expenditures
The Company is continuing the policy of replacing aging
machinery and equipment to maintain operating
efficiencies. Internally generated working capital is
anticipated to provide the funding required. The Company
also expects to continue to make enhancements and upgrades
to its information and communication systems capabilities.
At the end of 1995, the Company entered into a capital
lease for computer hardware and software to increase its
systems capabilities and, in turn, enhance the information
available to management.
Year 2000
Management's present assessment is that the Company will
be able to modify its significant software systems on a
timely basis to make them Year 2000 compliant without
material effects on the Company's business or results of
operations. The Company's principal retail customers have
been extending the scope of their electronic interfaces
with the Company and management believes that this is
likely to continue. To date, the Company has been able to
respond to its customers' Year 2000 requirements without
material effects on the Company's business or results of
operations and management presently has no reason to
believe that the Company will not be able to continue to
do so.
FAS 131 Disclosures About Segments of an Enterprise and
Related Information
This statement is effective for 1998. The new criteria
which are contained therein for identifying reportable
business segments will result in the Company reporting two
segments, Men's products and Women's products, in its
financial statements next year rather than the single
segment currently reported.
"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>
Swank, Inc.
Consolidated Balance Sheets as of December 31
(Dollars in thousands)
Assets 1997 1996
Current:
Cash and cash equivalents $ 1,235 $ 2,871
Accounts receivable, less allowances
of $9,706 and $10,463 12,173 7,977
Inventories:
Raw materials 4,341 3,930
Work in process 6,758 5,122
Finished goods 19,868 13,318
30,967 22,370
Deferred income taxes 3,242 2,921
Prepaid and other 1,223 1,766
Total current assets 48,840 37,905
Property, plant and equipment, at cost:
Land and buildings 7,568 7,452
Machinery and equipment 15,895 14,966
Improvements to leased premises 868 842
Capital leases 1,471 1,404
25,802 24,664
Less accumulated depreciation
and amortization 19,645 17,904
Net property, plant and equipment 6,157 6,760
Other assets 4,952 4,122
Total Assets $59,949 $48,787
Liabilities
Current:
Notes payable to banks $ 7,517 $ 0
Current portion of long-term debt 1,804 1,637
Term loan classified as current 1,295 2,700
Accounts payable 4,391 3,331
Accrued employee compensation 5,077 4,776
Accrued royalties payable 1,532 1,318
Income taxes payable 253 1,483
Other liabilities 2,616 3,620
Total current liabilities 24,485 18,865
Long-term obligations 8,603 8,591
Total Liabilities $33,088 $27,456
Commitments and contingencies (Note I)
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 25,623 20,776
27,877 23,312
Deferred employee benefits (307) (1,272)
Treasury stock at cost, 333,519
and 333,519 shares (709) (709)
Total stockholders' equity 26,861 21,331
Total liabilities and stockholders' equity $59,949 $48,787
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
<TABLE>
Swank, Inc.
Consolidated Statements of Operations
For Each of the Three Years Ended
December 31
(In thousands, except share and per share data)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $137,074 $132,642 $140,102
Cost of goods sold 77,547 74,396 85,774
Gross profit 59,527 58,246 54,328
Selling and administrative expenses 53,195 54,232 60,193
Income (loss) from operations 6,332 4,014 (5,865)
Interest charges, net 1,484 1,855 2,085
Income (loss) before income taxes 4,848 2,159 (7,950)
Provision for income taxes 1 860 994
Net income (loss) $ 4,847 $ 1,299 $ (8,944)
Net income (loss) per common share $ .30 $ .08 $ (.55)
Net income (loss) per common share assuming dilution $ .29 $ .08 $ (.55)
Weighted average common shares outstanding 16,378,645 16,053,135 16,135,368
Weighted average common shares outstanding
assuming dilution 16,434,541 16,053,135 16,135,368
</TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
For Each of the Three Years Deferred Employee
Ended December 31, Common Capital in Benefits Treasury Stock
1997, 1996 and 1995 Stock,Par Excess of Retained Number Number
(Dollars in thousands) Value $.10 Par Value Earnings of Shares Amount of Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 1,680 $ 825 $28,421 333,519 $ (709)
Exercise of employees'
stock options 4 27
Advance to retirement plan 664,461 $ (771)
Net loss (8,944)
Balance, December 31, 1995 1,684 852 19,477 664,461 (771) 333,519 (709)
Advance to retirement plan 610,327 (501)
Net income 1,299
Balance, December 31, 1996 1,684 852 20,776 1,274,788 (1,272) 333,519 (709)
Advance to retirement plan 514,437 (307)
Allocation to plan participants (282) (1,274,788) 1,272
Net income 4,847
Balance, December 31, 1997 $ 1,684 $ 570 $25,623 514,437 $ (307) 333,519 $ (709)
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in thousands)
For Each of the Three Years Ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 4,847 $ 1,299 $ (8,944)
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Increase (decrease) in accounts receivable allowances (757) 1,366 (387)
Depreciation and amortization 2,167 2,027 1,523
(Gain) loss on sale of fixed assets (1) 55
Decrease (increase) in deferred taxes (321) (632) 2,649
Decrease (increase) in recoverable income taxes 1,665 (1,665)
Increase in postretirement benefits 258 279 331
Change in assets and liabilities:
(Increase) decrease in accounts receivable (3,439) 1,361 3,557
(Increase) decrease in inventories (8,597) 6,800 (3,021)
(Increase) in prepaid and other (696) (568) (1,090)
(Decrease) increase in income taxes payable (1,230) 1,483 (1,826)
Increase (decrease) in accounts payable, accrued
and other liabilities 1,546 (875) 548
Increase in long-term obligations 92 1,126 2,274
Net cash provided by (used in) operations (6,131) 15,386 (6,051)
Cash flow from investing activities:
Net capital expenditures (1,072) (1,070) (663)
Net cash used in investing activities (1,072) (1,070) (663)
Cash flow from financing activities:
Borrowings under revolving credit agreements 54,304 84,615 37,550
Payments of revolving credit obligations (46,787) (95,415) (27,750)
Debt issuance costs (1,001) (458)
Principal payments on long-term obligations (1,643) (264) (2,920)
Advance to retirement plan (307) (501) (771)
Proceeds from exercise of employees' stock options 31
Net cash provided by (used in) financing activities 5,567 (12,566) 5,682
Net increase (decrease) in cash and equivalents (1,636) 1,750 (1,032)
Cash and cash equivalents at beginning of year 2,871 1,121 2,153
Cash and cash equivalents at end of year 1,235 $ 2,871 $1,121
Cash paid during the year for:
Interest $ 1,384 $ 1,779 $2,102
Income taxes $ 1,789 $1,794
Noncash transactions:
Capital lease obligation incurred $ 67 $ 62 $1,343
Allocation of shares to ESOP participants $ 1,272
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
A. The Company
The Company is engaged in the manufacture, sale and
distribution of men's jewelry, belts, leather accessories
and suspenders and women's jewelry. Its products are sold
both domestically and internationally, principally through
department stores, and also through specialty stores and
mass merchandisers. The Company operates a number of
factory outlet stores primarily to distribute excess and
out-of-line merchandise.
B. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts
of Swank and a wholly-owned foreign sales corporation.
All significant intercompany amounts have been eliminated.
Dollar amounts are in thousands except for per share data.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition
Net sales are comprised of gross sales less sales
allowances, including cash discounts, and customer
returns. Net sales are recorded upon shipment.
Allowances for Accounts Receivable
The Company's allowances for receivables are comprised of
cash discounts, doubtful accounts, in-store markdowns,
cooperative advertising and customer returns. Provisions
for doubtful accounts, in-store markdowns and cooperative
advertising are reflected in selling and administrative
expenses. The allowance for customer returns results from
the reversal of sales for estimated returns and associated
costs. These allowances are generally at their seasonal
highs on December 31. Reductions of these allowances
occur principally in the first and second quarters when
the balances are adjusted to reflect actual charges as
processed. These allowances are estimates made by
management based on historical experience, adjusted for
current conditions, and may differ from actual results.
The provision for bad debts for 1997, 1996 and 1995 was
$92, $631 and $805, respectively.
Cash Equivalents
For purposes of the consolidated statements of cash flows,
the Company considers all highly liquid instruments
purchased with original maturities of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (principally
average cost which approximates FIFO) or market. The
Company's inventory is considered fashion oriented and, as
a result, is subject to risk of rapid obsolescence.
Management believes that inventory has been adequately
marked down, where appropriate, and that the Company has
adequate channels to dispose of excess and obsolete
inventory.
In connection with the purchase of gold for manufacturing
requirements, the Company may enter into commodity forward
contracts to reduce the risk of future price fluctuations.
These contracts are accounted for as hedges and,
accordingly, gains and losses are deferred and recognized
in cost of sales as part of the product cost. At December
31, 1997 and 1996, the Company had no outstanding gold
contracts.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The
Company provides for depreciation of plant and equipment
by charges against income which are sufficient to write
off the cost of the assets on a straight-line or double
declining-balance basis over estimated useful lives of 10-
45 years for buildings and improvements and 3-12 years for
machinery and equipment. Improvements to leased premises
are amortized on a straight-line basis over the shorter of
the useful life of the improvement or the term of the
lease.
The Company has capitalized lease obligations for computer
hardware and software equal to the lesser of the present
value of the minimum lease payments or the fair market
value of the leased property at the inception of the
lease. The cost of the leased assets is amortized on a
straight line basis over the lesser of the term of the
lease obligation or the life of the asset, generally 3 to
5 years.
Expenditures for maintenance and repairs and minor
renewals are charged to expense; betterments and major
renewals are capitalized. Upon disposition, cost and
related accumulated depreciation are removed from the
accounts with any related gain or loss reflected in
results of operations.
Income Taxes
The Company utilizes the liability method of accounting
for income taxes. Under the liability method, deferred
taxes are determined based on the difference between the
financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. Net
deferred tax assets are recorded when it is more likely
than not that such tax benefits will be realized.
Environmental Costs
Environmental expenditures that relate to current
operations are expensed or capitalized, as appropriate.
Expenditures that relate to an existing condition caused
by past operations, and which do not contribute to current
or future revenue generation, are expensed. In 1997, the
Company adopted Statement of Position 96-1 ("SOP 96-1"),
"Environmental Remediation Liabilities," issued by the
American Institute of Certified Public Accountants. SOP
96-1 provides guidance on the recognition of expenses related to
environmental remediation activities and the related
financial statement disclosures. Adoption of SOP 96-1
did not have a material effect on the Company's financial
statements.
Liabilities are recorded when environmental assessments
<PAGE>
and/or remedial efforts are probable and the costs
can be reasonably estimated. Generally, adjustments
to these accruals coincide with the completion of a
feasibility study or the Company's commitment to a formal
plan of action or other appropriate benchmark."
Stock-Based Compensation
The Company measures the cost of stock-based compensation
associated with the stock option plans described in Note G
using the "intrinsic value" method. Under this method,
the increment of fair value, if any, at the date of grant
over the exercise price is charged to expense over the
period that the employee provides the associated services.
In 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123, which
include information with respect to stock-based
compensation determined under the "fair value" method.
The Company uses the Black-Scholes formula to determine
the fair value of options on the grant date.
Fair Value of Financial Instruments
The carrying value of notes payable to banks approximates
fair value because these financial instruments have
variable interest rates.
Net Income (loss) per Share
In 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" which
replaced primary and fully diluted earnings per share with
"basic" and "diluted" earnings per share. Net income
(loss) per common share or basic earnings per share are
determined without regard to options which were formerly
included as common stock equivalents in the computation of
primary earnings per share. Net income (loss) per share
assuming full dilution includes the effects of options.
All net income (loss) per share amounts are adjusted to
include, where appropriate, shares held by the Company's
employee stock ownership plan and deemed to be allocated
to participants and have been restated, as appropriate,
for all periods presented.
Concentrations of Credit Risk
The Company sells products primarily to major retailers
within the United States. The Company performs ongoing
credit evaluations of its customers and maintains reserves
for potential credit losses.
Sales to the Company's two largest customers accounted for
17% and 13% of consolidated net sales in 1997, 17% and
13% of consolidated net sales in 1996 and 19% and 12% in
1995, respectively. These customers represent 16% and 14%
of consolidated trade receivables (gross of allowances) in
1997 and 16% and 18% in 1996.
C. Short-Term Borrowings
1997 1996 1995
At December 31:
Total lines $25,000 $25,000 $32,000
Weighted average
interest rate 10.00% 9.75% 11.00%
For the year:
Monthly average borrowing
outstanding $8,296 $13,218 $18,266
Maximum borrowing outstanding
at any month end $16,712 $17,800 $28,800
Monthly interest rate
(weighted average) 10.78% 10.44% 10.32%
Balance at December 31 $7,517 $0 $10,800
The average amounts outstanding and weighted average
interest rates during each year are based on average
monthly balances outstanding under the Company's revolving
credit facility for seasonal working capital needs.
The Company obtained revolving credit financing on May 24,
1996 from IBJ Schroder Bank & Trust Company, as agent (the
"Lenders"), for up to $25,000 with a sublimit of $3,000 in
letters of credit (the "Revolving Credit Agreement"). The
proceeds of the Revolving Credit Agreement were used, in
part, to repay all but $4,000 of the outstanding balance
under a 1995 Agreement with other banks as further
described below.
The Revolving Credit Agreement is available through April
1999 and is collateralized by all of the Company's assets.
The Lenders have a senior lien position on substantially
all assets other than real property, improvements and
certain fixtures, in which the other banks maintain a
senior position to collateralize a Term Loan, as described
below, and in which the Lenders have a subordinate lien.
The Revolving Credit Agreement permits the Company to
borrow against a percentage of eligible accounts
receivable and eligible inventory at an interest rate of
1.5% over the Lenders' prime lending rate. The Revolving
Credit Agreement also contains a facility fee of 1/2%, per
annum, on the unused portion of the revolving credit
facility. A closing fee of $500 was paid on the closing
date.
The terms of the Revolving Credit Agreement include
covenants requiring the Company to maintain certain
financial ratios including interest coverage, leverage and
quarterly inventory turnover. The Revolving Credit
Agreement also includes covenants limiting capital
expenditures and additional indebtedness and requiring
minimum profitability. The Company believes the inventory
turnover covenant to be the most restrictive, requiring
minimum inventory turnover, as defined, up to 2.25 times
annually. The Revolving Credit Agreement also prohibits
the payment of dividends. Management believes this credit
facility will be adequate to meet the Company's working
capital needs until May, 1999.
In connection with the refinancing, the other banks
amended and restated the 1995 Agreement (described below)
to provide the Company with a $4,000 term loan (the "Term
Loan") in lieu of a like amount of revolving credit debt
then outstanding under the 1995 Agreement. The Term Loan
is payable in $200 quarterly increments which began in
June, 1997 with a final payment of the balance in May,
1999, if not prepaid earlier pursuant to annual
prepayments based on excess cash flow, as defined. The
Company prepaid $705 in 1997 and is required to prepay an
additional amount of approximately $625 by March 31, 1998.
The Term Loan bears interest at 2.5% over the other banks'
prime lending rate, a total of 11% at December 31, 1997,
and is collateralized by a senior lien on real property
and certain improvements and a subordinate lien on all
other assets. The Term Loan also requires an annual
facility fee of 2% of the term loan and a maximum success
fee of $450, of which $225 is payable at maturity and the
balance is payable in six equal monthly installments
thereafter. The Term Loan incorporates the covenants
contained in the Revolving Credit Agreement.
The financing agreements include provisions specifying
that a material adverse effect, as determined by the
lenders, in the financial position or results of
operations of the Company is an event of default. As such,
the portion of the Term Loan which would otherwise be
classified as long-term has been classified as current in
the accompanying balance sheets at December 31, 1997 and
1996. Based upon present informa-
<PAGE>
tion and the Company's operating plans for fiscal
1998, the Company expects that it will continue to
meet the financial covenants contained in the
Revolving Credit and Term Loan Agreements and that
eligible assets will provide a sufficient borrowing base
to meet the Company's seasonal working capital needs for
1998.
During 1995, a revolving credit agreement, as modified,
with other banks (the "1995 Agreement") provided loans
and letters of credit in an amount up to $32,000, at prime
plus 2.5%. Due primarily to the Company's net loss in
fiscal 1995 and the resulting failure of the Company to
meet various financial covenants under the 1995 Agreement,
the banks requested that the Company investigate
alternative sources of working capital.
D. Income Taxes
Provision (benefit) for income taxes:
1997 1996 1995
Currently payable (benefit):
Federal $253 $1,422 ($1,630)
State 51 37 (35)
Foreign sales corporation 18 33 9
322 1,492 (1,656)
Deferred:
Federal (282) (493) 2,037
State (39) (139) 613
(321) (632) 2,650
Total provision $ 1 $860 $994
Deferred tax provision (benefit) 1997 1996 1995
Accounts receivable reserves 1,398 $(697) $225
Deferred compensation 65 (122) (98)
Inventory capitalization (573) 94 (136)
Environmental costs 5 (161) (116)
Borrowing costs (178) 70
Postretirement benefits (152) (112) (130)
Inventory reserves (119) (212) (21)
Workman's compensation 389 (230) (201)
Termination costs (53) (68) (166)
Capital leases 92 (253)
Corporate owned
life insurance 621 3,044
Depreciation (153) 30 (7)
AMT credit carryforwards 627 345 (1,010)
State NOL carryforwards 50 315 (365)
Other items (129) (52) (159)
Valuation allowance (2,389) (2,375) 4,764
$(321) $(632) $ 2,650
Effective income tax rate:
1997 1996 1995
Statutory federal
income tax rate 34.0% 34.0% (34.0%)
State income taxes, net of
federal tax benefit 5.5 3.3 (3.6)
Life insurance 4.0 115.5 (5.5)
Valuation allowance (49.3) (111.5) 60.1
Allocation of ESOP shares 1.1 (4.4)
Other items, net 4.7 2.9 (4.5)
0.0% 39.8% 12.5%
Components of the net deferred tax asset
at December 31:
1997 1996 1995
Deferred tax assets
Accounts receivable reserves $1,558 $2,956 $2,259
Deferred compensation 1,764 1,829 1,707
Inventory capitalization 1,047 474 568
Environmental costs 662 667 506
Borrowing costs 178 178
Postretirement benefits 668 516 404
Inventory reserves 352 233 21
Workman's compensation 199 588 358
Termination costs 301 248 180
Capital leases 161 253
AMT credit carryforward 38 665 1,010
State NOL carryforwards 50 365
Other 526 397 345
Gross deferred asset 7,454 9,054 7,723
Less valuation allowance (2,389) (4,764)
Subtotal 7,454 6,665 2,959
Deferred tax liabilities
Depreciation (547) (700) (670)
Corporate owned
life insurance (3,665) (3,044)
Net deferred tax asset $3,242 $2,921 $2,289
The Health Insurance and Accountability Act of 1996 (the
"Act") eliminates the deduction of interest on policy
loans on a significant portion of the Company's corporate
owned life insurance (See Note F) on a phased-in basis
and, therefore, substantially increases the after tax cost
of maintaining these policies. The Company is not
committed to maintaining the affected policies and, unless
a better strategy emerges, management expects to surrender
these policies in 1998. Accordingly, a deferred tax
liability was recorded in 1997 and 1996 for the estimated
income taxes that will become due over a four year period
after the policies are surrendered.
A valuation allowance was provided in 1996 and 1995 to
reduce deferred tax assets to a level which management
believed more likely than not to be realized. Alternative
minimum tax credit carryforwards are available to reduce
future regular federal income taxes over an indefinite
period.
E. Long-Term Obligations
Long-term obligations, excluding the current portion, at
December 31, were as follows:
1997 1996
1987 deferred compensation plan (1) $2,312 $2,323
1993 deferred compensation plan (1) 1,909 1,467
Postretirement benefits other than
pensions (1) 907 549
Supplemental death benefits 162 201
Environmental liabilities 1,588 1,588
Other 1,215 1,615
Long-term portion of capital lease (2) 510 848
$8,603 $ 8,591
(1) See Note F
(2) The Company's lease agreements for certain computer hardware
and software and have been classified as capital leases for
financial reporting purposes. Accumulated amortization of
assets under capital leases was $1,106 and $570 as of
December 31, 1997 and 1996, respectively. Office equipment
and computer hardware with aggregate fair values of
approximately $67 and $62 were added to capitalized leases in
1997 and 1996, respectively.
<PAGE>
Future minimum lease payments and the present value of the
minimum lease payments as of December 31, 1997 were:
1998 $501
1999 283
2000 210
2001 64
2002 18
Subtotal 1,076
Imputed interest at 11.0% (104)
Present value of minimum
lease payments $972
F. Employee Benefits
Effective January 1, 1994, the Company amended and
restated the Swank, Inc. Employees' Stock Ownership Plan
in a merger with the Swank, Inc. Employees' Stock
Ownership Plan No. 2 and the Swank, Inc. Savings Plan. The
combined plans became The New Swank, Inc. Retirement Plan
(the "Plan"). The Plan incorporates the characteristics of
the three predecessor plans, covers substantially all full
time employees and reflects the Company's continued desire
to provide added incentives and to enable employees to
acquire shares of the Company's Common Stock. The cost of
the Plan has been borne by the Company.
The savings (401(k)) component of the Plan provides
employees an election to reduce taxable compensation
through contributions to the Plan. Matching cash
contributions from the Company are determined annually at
the Board's discretion. Shares of Common Stock acquired by
the stock ownership component of the Plan are allocated to
participating employees to the extent of contributions to
the Plan, as determined annually at the discretion of the
Board of Directors, and are vested on a prescribed
schedule. Expenses for the Company's contributions to the
Plan were $1,256, $1,238, and $300 in 1997, 1996 and 1995,
respectively. The 1997 and 1996 contributions include $470
and $990, respectively, determined at average fair value,
upon the commitment to allocate 514,437 and 1,274,788
shares, respectively, to participants in the stock
ownership component of the Plan. The allocations of these
shares were made in February of the respective subsequent
years to individual employees' accounts as of December 31
and are reflected in the consolidated statements of
changes in stockholders' equity and as a non-cash
transaction for purposes of the consolidated statements of
cash flows in the year allocated. At December 31, 1997,
the Plan held a total of 10,046,402 shares of the
Company's outstanding stock. The Company makes loans at 8%
per annum to the Plan to provide the Plan with liquidity
to meet the statutory obligation to purchase shares
tendered by former employees. Outstanding balances were
$307 and $1,272 at December 31, 1997 and 1996,
respectively. These are classified in the balance sheet
as deferred employee benefits, a reduction in
stockholders' equity.
The Company provides postretirement life insurance,
supplemental pension and medical benefits for certain
groups of active and retired employees. The postretirement
medical plan is contributory, with contributions adjusted
annually; the death benefit is noncontributory. The
Company recognizes the cost of postretirement benefits
over the period in which they are earned and amortizes the
transition obligation for all plan participants on a
straight-line basis over a 20 year period which began in
1993.
The following table sets forth the plans' funded status
reconciled to the amount shown in the Company's statement
of financial position at December 31:
1997 1996
Accumulated postretirement
benefit obligation:
Retirees $(2,765) $(2,882)
Fully eligible plan participants (1,600) (1,437)
Other plan actives (1,102) (937)
$(5,467) $(5,256)
Plan assets at fair value
Accumulated postretirement benefit
obligation in excess of plan assets $(5,467) $(5,256)
Unrecognized net loss from past ex-
perience different from that assumed
and from changes in assumptions 1,510 1,397
Prior service cost not yet recognized
in net periodic postretirement
benefit cost
Unrecognized transition obligation 2,393 2,553
Accrued postretirement benefit cost (1) $(1,564) $(1,306)
(1) Amounts totaling $657 and $757 have been included in accrued
employee compensation as of December 31, 1997 and 1996,
respectively. The remaining balance has been included in
long-term obligations as set forth in Note E.
The weighted-average discount rate used in determining the
accumulated postretirement obligation was 7.0% and 7.5% at
December 31, 1997 and 1996, respectively.
Net periodic postretirement benefit cost for 1997, 1996 and
1995 included the following components:
1997 1996 1995
Service cost-benefits attributed to
service during the period $45 $42 $75
Interest cost on accumulated post-
retirement benefit obligation 379 369 365
Amortization of transition obligation 160 160 160
Amortization of actuarial loss 73 96 77
Net periodic postretirement benefit cost
included in selling and administrative $657 $667 $677
For measurement purposes, a 7.0% annual rate of increase
in the per capita cost of covered health care benefits was
assumed for 1997; the rate was assumed to decrease
gradually to 5.5% for 1999 and to remain at that level
thereafter. The effect of increasing the assumed health
care cost trend rate by one percentage point in each year
would increase the accumulated postretirement benefit
obligation as of December 31, 1997 by $59 and the effect
on the service and interest cost components of net
periodic postretirement benefit cost for the year then
ended would be insignificant.
Life insurance contracts have been purchased on the lives
of certain employees in order to fund postretirement death
benefits to beneficiaries of salaried employees who reach
age sixty with ten years of service. Proceeds from these
contracts are expected to be adequate to fund the
Company's obligations although there are likely to be
differences in the timing of cash flows over the life of
the program. The cost of these contracts is included in
the annual cost shown above.
<PAGE>
In 1987 the Company adopted a deferred compensation plan
for certain key executives that provides for payment of
the amounts deferred, plus interest, upon retirement,
death or other termination of employment. Amounts payable
to participants in this plan aggregated $2,661 and $3,067
at December 31, 1997 and 1996, respectively, of which $349
and $744 have been classified in accrued employee
compensation in 1997 and 1996, respectively. The balance
of the liability has been included in long-term
obligations (See Note E). Life insurance contracts
intended to fund the 1987 plan benefits through future
death proceeds were purchased on the lives of the
participants in the plan and on certain other employees.
However, as described in Note D, management anticipates
that these contracts will be surrendered in 1998.
In 1993, the Company established an additional deferred
compensation plan for certain key executives that provides
for payments of the amounts deferred and the earnings
thereon upon retirement, death or other termination of
employment. Amounts payable to participants of this plan
aggregated $2,022 and $1,563 at December 31, 1997 and
1996, respectively, of which $113 and $96, respectively,
have been classified in accrued employee compensation. The
balance of the liability has been included in long-term
obligations (See Note E). Variable life insurance
contracts have been purchased on the lives of the plan
participants and on certain other employees in connection
with this plan. These contracts are held in a grantor
trust and the contract values are expected to be adequate
to fund the benefit obligations.
The net charges related to these deferred compensation
plans are included in selling and administrative expense
and aggregated $819, $856 and $1,153, in 1997, 1996 and
1995, respectively.
The Company uses loans against the policy cash values to
pay part or all of the annual life insurance premiums,
except for the variable life policies. The aggregate
gross cash surrender value of all policies was
approximately $31,604 and $30,339, at December 31, 1997
and 1996, which is included in other assets, net of policy
loans aggregating approximately $26,744 and $26,401,
respectively. At December 31, 1997, the gross cash
surrender value and related policy loans of those policies
anticipated to be surrendered in 1998 were approximately
$23,951 and $23,576, respectively. The Company has no
intention of repaying any policy loans and expects that
they will be liquidated from future death benefits or by
surrender of the policies. Interest on policy loans
amounted to approximately $2,041, $2,207 and $2,128 in
1997, 1996 and 1995, respectively, and is included in the
net costs of each plan described above. The weighted
average interest rate on policy loans was 7.8%, 8.6% and
8.7% at December 31, 1997, 1996 and 1995, respectively.
G. Stock Options
Under the Company's employee stock option plans, options
were granted to key employees to purchase shares of Common
Stock at the market value on the date of grant and are
generally exercisable beginning one year after the date of
grant and continuing for an additional nine years. No
additional options may be granted under the employees'
plans.
In 1994, the Company established a directors' stock option
plan pursuant to which options may be granted to non-
employee directors to purchase 150,000 shares of Common
Stock at market value on the date of grant. Options
granted under this plan are for a period of five years and
are immediately exercisable. Options to purchase 15,000,
15,000 and 20,000 shares of Common Stock were granted
under this plan in 1997, 1996 and 1995, respectively. At
December 31, 1997, a total of 85,000 shares of Common
Stock were reserved for future grants under the directors'
plan.
The following table summarizes stock option activity for
the years 1995 through 1997:
Weighted
Average
Option Exercise Exercise
Shares Price Price
Outstanding at
December 31, 1994 2,289,607 $ .94 to $1.17
Exercised (51,000) . 94 to 1.16
Expired (55,447) . 94 to 1.16
Granted 20,000 1.16
Outstanding at
December 31, 1995 2,203,160 $.94 to $1.17 $1.07
Exercised
Forfeited (291,772) 1.06
Expired
Granted 200,000 .70
Outstanding at
December 31, 1996 2,111,388 1.03
Exercised
Forfeited (80,600) .97
Expired (1,074,988) 1.16
Granted 15,000 .78
Outstanding at
December 31, 1997 970,800 $.89
The estimated weighted average fair value of options granted in
1996 was approximately $.63 per share on the grant dates
determined using a 6.5% interest rate, an expected life of 10
years, expected volatility of .99 and assuming no dividends. The
pro forma effect of accounting for options granted in 1996 using
the fair value method on 1997 and 1996 net income and net income
per share was insignificant.
Options outstanding as of December 31, 1997 were as follows:
Weighted Weighted Number Weighted
Exercise Shares Average Average Exer- Average
Price Outstanding Life Price cisable Price
$.78-$1.28 55,000 3.16 $.97 55,000 $.97
$.94 730,800 3.75 .94 730,800 .94
$.69 185,000 8.75 .69 61,667 .69
Total 970,800 4.67 $.89 847,467 $.92
H. Net Income (Loss) Per Share
Unallocated shares maintained in the Company's Employee
Stock Ownership Plans ("ESOP"), described in Note F, are
reflected as a reduction of outstanding shares for
earnings per share purposes until such shares are
committed to be allocated. At December 31, 1997, 1996 and
1995 the Company had 0, 0 and 664,461 shares,
respectively, remaining in its ESOP which were not
committed to be allocated.
<PAGE>
<TABLE>
The following table sets forth the computation of net
income (loss) per share:
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Numerator:
Net Income (loss) $4,847 $1,299 $(8,944)
Denominators:
Weighted average common shares outstanding 16,509,523 16,509,523 16,498,700
Effect of excluding unallocated
shares held in ESOP (130,878) (456,388) (363,332)
Shares used in computing
net income (loss) per
common share 16,378,645 16,053,135 16,135,368
Effect of dilutive options 55,896
Shares used in computing
net income (loss) per
common share
assuming dilution 16,434,541 16,053,135 16,135,368
Net income (loss) per
common share $ .30 $ .08 $ (.55)
Net income (loss) per
common share
assuming dilution $ .29 $ .08 $ (.55)
</TABLE>
I. Commitments and Contingencies
The Company leases certain of its warehousing, sales and
office facilities, automobiles and equipment under
noncancelable long-term operating leases. Certain of the
leases provide renewal options ranging from one to ten
years and escalation clauses covering increases in various
costs. Total rental expenses amounted to $3,373, $3,811
and $4,109, in 1997, 1996 and 1995, respectively.
Future minimum lease payments under noncancelable
operating leases as of December 31, 1997 are as follows:
1998 $2,222
1999 1,922
2000 1,199
2001 141
Total minimum payments $5,484
The Company owns the rights to various patents,
trademarks, trade names and copyrights and has exclusive
licenses to market certain products in specified
territories, principally in the United States. The
Company's licenses for "Yves Saint Laurent", "Geoffrey
Beene", "Kenneth Cole" and "Pierre Cardin" (men's), and
"Anne Klein", "Anne Klein II', and "Guess?" (women's) may
be considered material to the Company's business. The
Company is obligated to pay minimum royalties under
certain license agreements as follows: 1998- $3,056; 1999-
$3,991; 2000- $2,023; 2001- $1,849; and 2002- $850.
Generally, the license agreements require the Company to
provide various forms of advertising and promotion support
determined as a percentage of annual net sales of licensed
merchandise and licensors generally retain audit rights
for a specified period. Management believes that the
Company's license obligations have been adequately
reflected in the accompanying financial statements.
On June 7, 1990 the Company received notice from the
United States Environmental Protection Agency ("EPA") that
it, along with fifteen others, had been identified as a
Potentially Responsible Party ("PRP") in connection with
the release of hazardous substances at a Superfund Site
located in Massachusetts. This notice does not constitute
the commencement of a proceeding against the Company or
necessarily indicate that a proceeding against the Company
is contemplated. The Company, along with six other PRP's,
has voluntarily entered into an Administrative Order
pursuant to which, inter alia, they have undertaken to
conduct a remedial investigation/feasibility study
("RI/FS") with respect to the alleged contamination at the
site. It is the position of the PRP's that the remedial
investigation has been completed. The scope of work is
within the discretion of the EPA. Accordingly, it is
reasonably possible that the Company's potential
obligation may change in the near term. The Company's
share of costs for the RI/FS is being allocated on an
interim basis at approximately 12.5%. This Superfund site
is adjacent to a municipal landfill that is in the process
of being closed under Massachusetts law. Due to the
proximity of the site to the landfill and the composition
of waste at the site, the issues are under discussion
regarding the site among state and federal agencies and
the United States Department of Energy.
The Company signed a judicial consent decree relating to
the Western Sand and Gravel site located in Burrillville
and North Smithfield, Rhode Island which was entered on
August 28, 1992 by the U.S. District Court for the
District of Rhode Island. The most likely scenario cost
estimates for remediation of the ground water at the site
range from approximately $2.8 million to approximately
$7.8 million. Based on current participation, the
Company's share is approximately 8% of approximately 75%
of the costs. The Company and certain other participants
have commenced litigation against non-settling potentially
responsible parties to seek to obtain reimbursement for
their share of the remediation costs. In 1988, the Company
received notice that it had been identified as a PRP,
together with numerous other companies, in connection with
an unrelated site in another state. The Company has
appropriately responded but has received no further
communications on this matter.
The estimated liability for costs associated with
environmental sites is included in Long-term obligations
in the accompanying balance sheets, exclusive of
additional amounts of approximately $88 and $100 included
in Other liabilities in 1997 and 1996, respectively.
These amounts have not been discounted. Management
believes that the accompanying financial statements
include adequate provision for environmental exposures.
J. Promotional Expenses
Substantial expenditures for advertising and promotion are
considered necessary to maintain and enhance the Company's
business and, as described in Note I, certain license
agreements require specified levels of spending. These
expenditures are included in Selling and Administrative
expenses in the year incurred. The following table
summarizes the various promotional expenses incurred by
the Company.
(in thousands) 1997 1996 1995
In-store markdowns $5,442 $6,120 $6,121
Co-op advertising 1,106 1,095 1,227
Displays 1,357 932 1,620
National advertising & other 1,114 1,104 1,755
Total $9,019 $9,251 $10,723
Percentage of net sales 6.6% 7.0% 7.7%
K. Disclosures About Segments of an Enterprise and Related
Information
Statement of Financial Accounting Standards No. 131
"Disclosures About Segments of an Enterprise and Related
Information" is effective for 1998. This statement
contains new criteria for identifying reportable business
segments and, beginning next year, will result in the
Company reporting two segments, Men's products and Women's
products, in its financial statements rather than the
single segment currently reported.
<PAGE>
Report of Independent Accountants
To the Stockholders of Swank, Inc.
Attleboro, Massachusetts:
We have audited the accompanying consolidated balance
sheets of Swank, Inc. as of December 31, 1997 and 1996,
and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1997.
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 consolidated
financial position of Swank, Inc. as of December 31, 1997
and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Boston, Massachusetts
February 13, 1998
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
About the Company
Swank, Inc. is a leading U.S. manufacturer and distributor
of men's jewelry, belts, leather accessories and
suspenders and women's jewelry. The Company is dedicated
to maintaining style and quality leadership in the broad
diversity of products it markets.
The Company's customers are primarily major retailers
within the United States. Sales have become more
concentrated as a result of consolidations within the
retail industry. The Company's ten largest customers
represented approximately 65% of consolidated net sales in
1997 compared to 63% in 1996.
In order to appeal to a large economic cross-section of
the buying public, most of Swank's collections are offered
in a wide variety of styles and price ranges.
The Company takes great pride in the strength of its
consumer franchise and the brand name recognition of its
products such as "Yves Saint Laurent", "Pierre Cardin",
"Kenneth Cole", "Geoffrey Beene", "Colours by Alexander
Julian", "Anne Klein", "Anne Klein II", "Guess?" and
"Swank".
Approximately 96 sales people and regional managers are
engaged in the sale of Company products, working out of
offices located in 5 major cities throughout the United
States. The Company employs approximately 1,250 people.
Swank operates a production facility in each of
Massachusetts and Connecticut, a distribution facility in
Massachusetts and 17 factory outlet stores in 11 states.
Market for the Company's Common Stock and Related
Stockholder Matters
The Company's common stock trades on The Nasdaq Stock
Market(sm) under the symbol SNKI. The following table sets
forth in 1997 and 1996 the range of high and low sales
prices of the Company's Common Stock, as reported by The
Nasdaq Stock Market for the calandar quarters indicated.
1997 1996
Quarter High Low High Low
First $.94 $.53 $.94 $ .63
Second .88 .63 1.22 .63
Third 1.00 .66 1.06 .75
Fourth 1.28 .81 .88 .56
For the Year $1.28 $ .53 $1.22 $ .56
Number of Record Holders at February 26, 1998 - 1,745
Estimated number of stockholders - 3,716
Form 10-K
The Company's Annual Report on Form 10-K will be furnished
without charge to stockholders. Written requests for this
report should be forwarded to Mr. Christopher F. Wolf,
Corporate Secretary, Swank, Inc., P.O. Box 2962,
Attleboro, Massachusetts 02703-0962.
<PAGE>
Corporate Information
Board of Directors
Mark Abramowitz
Parker Chapin Flattau & Klimpl, LLP
John J. Macht
The Macht Group, Retail and
Marketing Consultants
James E. Tulin
Senior Vice President-Merchandising
John Tulin
President and Chief Executive Officer
Marshall Tulin
Chairman of the Board
Raymond H. Vise
Retired Senior Vice President
Corporate Data
Executive and Administrative Office
6 Hazel Street
Attleboro, Massachusetts 02703
Executive and National Sales Offices
90 Park Avenue
New York, New York 10016
International Division Sales Office
90 Park Avenue
New York, New York 10016
Regional Sales Offices
Atlanta, Chicago, Dallas, Beverly Hills, New York
Production and Distribution Facilities
Attleboro, Massachusetts
South Norwalk, Connecticut
Taunton, Massachusetts
General Counsel
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Transfer Agent and Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Corporate Officers
Marshall Tulin
Chairman of the Board
John Tulin
President and
Chief Executive Officer
Richard V. Byrnes, Jr.
Senior Vice President-
Operations
Paul Duckett
Senior Vice President-
Distribution and
Retail Store Operations
Arthur T. Gately, Jr.
Senior Vice President-
Administration
Melvin Goldfeder
Senior Vice President-
Special Markets
Eric P. Luft
Senior Vice President-
Men's Division
William F. Rubin
Senior Vice President-
Regional Sales
Bruce Shopoff
Senior Vice President-
Regional Sales
James E. Tulin
Senior Vice President-
Merchandising
Lewis Valenti
Senior Vice President-
Women's Division
Christopher F. Wolf
Senior Vice President-
Chief Financial Officer,
Secretary and Treasurer
Barry Heuser
Vice President-
Merchandising
Belt Division
Jerold R. Kassner
Vice President-
Controller
Frederick M. Moehle
Vice President-
Merchandising
Women's Division
Kimberly Renk
Vice President-
Merchandising
Women's Division
Robert Rosenberg
Vice President-
Regional Sales
<PAGE>
EXHIBIT 23.01
<PAGE>
Exhibit 23.01
Consent of Independent Accountants
To the Stockholders of Swank, Inc.
Attleboro, Massachusetts:
We consent to the incorporation by reference in the Registration
Statement relating to the Swank, Inc. 1987 Incentive Stock Option
Plan (File No. 33-23913) on Form S-8, of our report dated
February 13, 1998, on our audits of the consolidated financial
statements and financial statement Swank, Inc. as of
December 31, 1997 and 1996 and for the years ended December 31,
1997, 1996 and 1995, which report is incorporated in this Annual
Report on Form 10-K. We also consent to the inclusion in this
Form 10-K of our report on the financial statement schedule.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 30, 1998
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<CIK> 0000095779
<NAME> SWANK, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,235
<SECURITIES> 0
<RECEIVABLES> 21,879
<ALLOWANCES> 9,706
<INVENTORY> 30,967
<CURRENT-ASSETS> 48,840
<PP&E> 25,802
<DEPRECIATION> 19,645
<TOTAL-ASSETS> 59,949
<CURRENT-LIABILITIES> 24,485
<BONDS> 0
0
0
<COMMON> 1,684
<OTHER-SE> 25,177
<TOTAL-LIABILITY-AND-EQUITY> 59,949
<SALES> 137,074
<TOTAL-REVENUES> 137,074
<CGS> 77,547
<TOTAL-COSTS> 77,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 92
<INTEREST-EXPENSE> 1,484
<INCOME-PRETAX> 4,848
<INCOME-TAX> 1
<INCOME-CONTINUING> 4,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,847
<EPS-PRIMARY> 0.30
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