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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
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. / x /
The aggregate market value of the Common Stock of the
Registrant held by non-affiliates of the Registrant on March 31,
2002 was $1,104,498. 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:
5,522,490 shares of Common Stock as of the close of business on
April 30, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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 accessories under the names "Kenneth Cole",
"Geoffrey Beene", "Pierre Cardin", "Claiborne", "John Henry",
"Tommy Hilfiger", "Guess", "Swank", and "Colours by Alexander
Julian", among others. Prior to July 23, 2001, the Company was
also engaged in the manufacture, sale, and distribution of
women's costume jewelry.
On July 23, 2001, the Company sold certain assets
associated with its women's costume jewelry division pursuant to
an Agreement dated July 10, 2001 (the "Agreement") between the
Company and K&M Associates, LP ("K&M"), a subsidiary of American
Biltrite, Inc. Pursuant to the Agreement, the Company sold to
K&M, inventory, accounts receivable and miscellaneous other
assets relating to the Company's Anne Klein, Anne Klein II,
Guess?, and certain private label women's costume jewelry
businesses. The purchase price paid by K&M to the Company at the
closing of the transactions contemplated by the Agreement was
approximately $4,600,000, subject to adjustment. K&M also assumed
the Company's interest in its respective license agreements with
Anne Klein, a division of Kasper A.S.L., Ltd., and Guess?
Licensing Inc. and certain specified liabilities. In connection
with the sale to K&M, the Company and K&M entered into an
agreement whereby the Company provided certain operational and
administrative services to and on behalf of K&M for a period of
time extending from the closing date through December 31, 2001
(the "Transition Agreement"). As provided by the Transition
Agreement, the Company was reimbursed by K&M in 2001 for its
direct costs associated with performing the transition services.
Products
Men's leather accessories, principally belts, wallets
and other small leather goods including billfolds, key cases,
card holders and other items, and suspenders are distributed
under the names "Geoffrey Beene", "Pierre Cardin", "Claiborne",
"John Henry", "Kenneth Cole", "Tommy Hilfiger", "Guess?", "Swank"
and "Colours by Alexander Julian". The Company also manufactures
and distributes men's leather accessories for customers' private
labels. Men's jewelry consists principally of cuff links, tie
klips, chains and tacs, bracelets, neck chains, vest chains,
collar pins, key rings and money clips which are distributed
under the names "Geoffrey Beene", "Pierre Cardin", "Claiborne",
"John Henry", "Kenneth Cole", "Tommy Hilfiger", "Guess?", "Swank"
and "Colours by Alexander Julian".
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.
In addition to product, pricing and terms of payment,
the Company's customers generally consider one or more factors,
such as the availability of electronic order processing and the
timeliness and completeness of shipments, as important in
maintaining ongoing relationships. In addition, the Company
generally will allow customers to return merchandise in order to
achieve proper stock balances. These factors, among others,
result in the Company increasing its inventory levels during the
Fall selling season in order to meet customer imposed
requirements. The Company believes that these practices are
substantially consistent throughout the fashion accessories
industry.
Sales and Distribution
The Company's customers are primarily major retailers
within the United States. Sales to the Company's three largest
customers, Federated Department Stores, Inc., Target Corp., and
the May Department Stores, Inc. accounted for approximately 16%,
15%, and 12%, respectively, of consolidated net sales in 2001;
approximately 17%, 15%, and 13% respectively, in 2000; and
approximately 17%, 17%, and 11% respectively, of in 1999. In
addition, sales to the TJX Companies, Inc. accounted for
approximately 10% of consolidated net sales in 2001. No other
customer accounted for more than 10% of consolidated net sales
during fiscal years 2001, 2000 or 1999. Exports to foreign
countries accounted for less than 5% of consolidated net sales in
each of the Company's fiscal years ended December 31, 2001, 2000
and 1999, respectively.
Approximately 47 salespeople and district managers are
engaged in the sale of products of the Company, working out of
sales offices located in three major cities in the United States.
In addition, the Company sells certain of its products at retail
in 15 factory outlet stores located in 10 states. The Company has
licensed or sub-licensed the production and sale of certain of
its lines in certain foreign countries under royalty
arrangements.
Manufacturing
Items manufactured by the Company accounted for
approximately 53% of consolidated net sales in fiscal 2001.
Historically, the Company has manufactured and/or assembled its
men's and women's costume jewelry products at the Company's plant
in Attleboro, Massachusetts and at the Company's 65% owned
subsidiary, Joyas y Cueros de Costa Rica, S.A. ("Joyas y Cueros")
located in Cartago, Costa Rica. However, during fiscal 2000, the
Company ceased jewelry production operations at its Attleboro
facility and, on April 6, 2001, ceased production operations at
Joyas y Cueros in Costa Rica, in each case, transferring its
production requirements to third party vendors. The Company
manufactures belts and suspenders at the Company's leased
premises located in South Norwalk, Connecticut.
The Company purchases substantially all of its small
leather goods, principally wallets, from a single supplier in
India. Unexpected disruption of this source of supply could have
an adverse effect on the Company's small leather goods business
in the short-term depending upon the Company's inventory position
and on the seasonal shipping requirements at that time. However,
the Company believes that alternative sources for small leather
goods are available and could be utilized by the Company within
several months. The Company also purchases finished belts and
other accessories as well as certain belt components, including
buckles, from a number of suppliers in the United States and
abroad. The Company believes that alternative suppliers are
readily available for substantially all such purchased items. Raw
materials are purchased in the open market from a number of
domestic and foreign suppliers and are readily available.
Advertising Media and Promotion
Substantial expenditures on advertising and promotion
are an integral part of the Company's business. Approximately
2.8% of net sales was expended on advertising and promotion in
2001, of which approximately 1.5% was for advertising media,
principally in national consumer magazines, trade publications,
newspapers, radio and television. The remaining expenditures were
for cooperative advertising, fixtures, displays and point-of-sale
materials.
Competition
The businesses in which the Company is engaged are
highly competitive. The Company competes with, among others,
Trafalgar, Cipriani, Salant, Humphrey's, Fossil, Tandy Brands
Accessories, Inc., and private label programs in men's belts;
Tandy Brands Accessories, Inc., Cipriani, Fossil, Mundy, and
retail private label programs in small leather goods; and David
Donahue in men's jewelry. The ability of the Company to continue
to compete will depend largely upon its ability to create new
designs and products, to meet the increasing service and
technology requirements of its customers and to offer consumers
high quality merchandise at popular prices.
Patents, Trademarks and Licenses
The Company owns the rights to various patents,
trademarks, trade names and copyrights and has exclusive licenses
in the United States for, among other things, (i) men's leather
accessories under the name "Pierre Cardin", (ii) men's leather
accessories and costume jewelry under the names "Geoffrey Beene",
"Claiborne", "Kenneth Cole", "John Henry", "Tommy Hilfiger" and
"Colours by Alexander Julian" and (iii) men's small leather goods
and men's and costume jewelry under the name "Guess?". The
Company's "Geoffrey Beene", "Pierre Cardin", "Claiborne",
"Kenneth Cole", "John Henry", "Tommy Hilfiger", and "Guess?"
licenses collectively may be considered material to the Company's
business. The Company does not believe that its business is
materially dependent on any one license agreement. The "Pierre
Cardin" leather accessories licenses and the "Claiborne" and
"John Henry" licenses provide for percentage royalty payments not
exceeding 6% of net sales. The "Guess?", "Geoffrey Beene" and
"Tommy Hilfiger" licenses provide for percentage royalty payments
not exceeding 7% of net sales. The "Kenneth Cole" licenses and
the "Pierre Cardin" costume jewelry license provide for
percentage royalty payments not exceeding 8% of net sales. The
license agreements to which the Company is a party generally
specify minimum royalties and minimum advertising and promotion
expenditures. The Company's "Geoffrey Beene" license expires June
30, 2005. The Company's license to distribute "Pierre Cardin"
leather accessories expires December 31, 2003. The Company's
"Kenneth Cole" licenses expire December 31, 2002. The Company's
John Henry license expires January 31, 2003. The Company's
"Guess?" license expires December 31, 2003. The Company's "Tommy
Hilfiger" license expires December 31, 2004. The Company's
Claiborne license expired on December 31, 2001. The Company
continued operating under that license during negotiations with
its licensor for the extension of that license.
Employees
The Company has approximately 685 employees, of whom ap
proximately 217 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.
Recent Developments
On April 6, 2001, the Company ceased production operations
at Joyas y Cueros, its costume jewelry manufacturing facility
located in Cartago, Costa Rica. Joyas y Cueros had been engaged
in the manufacture of certain men's and women's jewelry items for
the Company as a majority-owned subsidiary since 1999. Management
determined that Joyas y Cueros could not be competitive with
other jewelry resources in light of recent changes in women's
jewelry fashion trends and improved quality and price
competitiveness from Asian vendors. The Company currently
purchases men's costume jewelry from a variety of domestic and
foreign vendors and was able to re-source the items manufactured
by Joyas y Cueros with no disruption in the flow of merchandise.
During fiscal 2000, the Company began reducing its
operations at Joyas y Cueros. In connection with the reduction,
Joyas y Cueros recorded charges of approximately $1,218,000
during 2000 to reflect a write-down in the value of its
manufacturing machinery and equipment and raw materials
inventory. Joyas y Cueros also recorded a charge for severance
and associated costs of approximately $264,000 in 2001 in
connection with the termination of its manufacturing operations.
Approximately 150 employees were terminated in connection with
the restructuring and plant closure. The Company had completed
the sale and liquidation of Joyas y Cueros' remaining assets at
December 31, 2001.
During the second quarter of fiscal 2001, the Company
completed a sale and lease back of its manufacturing facility in
South Norwalk, Connecticut. The manufacturing facility was sold
at a purchase price of $6,100,000. The Company then leased back
the facility for a period of ten years. The net proceeds of the
sale were used by the Company to reduce its outstanding bank
indebtedness.
As discussed above, on July 23, 2001, the Company sold
certain assets associated with its women's costume jewelry
division pursuant to the Agreement dated July 10, 2001 between
the Company and K&M. Pursuant to the Agreement, the Company sold
to K&M inventory, accounts receivable and miscellaneous other
assets relating to the Company's Anne Klein, Anne Klein II,
Guess?, and certain private label women's costume jewelry
businesses. The purchase price paid by K&M to the Company at the
closing of the transactions contemplated by the Agreement was
approximately $4,600,000. K&M also assumed the Company's interest
in its respective license agreements with Anne Klein, a division
of Kasper A.S.L., Ltd., and Guess? Licensing Inc. and certain
specified liabilities. The cash portion of the purchase price is
subject to adjustment under certain circumstances. In connection
with the sale to K&M, the Company and K&M entered into an
agreement whereby the Company provided certain operational and
administrative services to and on behalf of K&M for a period of
time extending from the closing date through December 31, 2001.
As provided by the Transition Agreement, the Company was
reimbursed by K&M in 2001 for its direct costs associated with
performing the transition services. In connection with the
disposal of its women's costume jewelry business, the Company
recorded a non-recurring charge of $5,957,000 net of income tax
benefit of $810,000 in 2001.
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. Until its closure in 2000, this facility had also
been used to manufacture and/or assemble costume jewelry products
for both the women's accessories and men's accessories segments.
The Company's national, international, and regional
sales offices are located in leased premises at 90 Park Avenue,
New York City. On July 23, 2001 the Company entered into a
sublease agreement with K&M for approximately 43% of its space
under lease at 90 Park Avenue. The lease and sublease of such pre
mises both expire in 2010. A regional sales office is also
located in leased premises in Chicago and a branch office is
leased in Scottsdale. The leases for the Chicago and Scottsdale
offices expire in 2004 and 2003, respectively. Collectively,
these offices contain approximately 22,000 square feet.
The Company also leases a warehouse containing
approximately 242,000 square feet in Taunton, Massachusetts,
which is used in the distribution of all of the Company's
products. In addition, one of the Company's factory stores is
located within the Taunton location. The lease for these
premises expires in 2006.
Men's belts and suspenders are manufactured in leased
premises located in South Norwalk, Connecticut consisting of a
manufacturing plant and office space in a 126,500 square foot
building, located on approximately seven and one-half acres. The
lease for these premises expires in 2011. Reference is made to
the information with regard to the sale and lease back of the
Company's South Norwalk manufacturing facility set forth above in
Item 1 under the caption "Recent Developments."
The Company's manufacturing and distribution facilities
are equipped with modern machinery and equipment, substantially
all of which are owned by the Company, with the remainder leased.
In management's opinion, the Company's properties and machinery
and equipment are adequate for the conduct of the respective
businesses to which they relate.
The Company presently operates 15 factory outlet store
locations in addition to the outlet store in Taunton,
Massachusetts as described above. These stores have leases with
terms not in excess of five years and contain approximately
25,000 square feet in the aggregate.
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, have 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.
The remedial investigation of the site is ongoing. The
Massachusetts Superfund site is adjacent to a municipal landfill
that is in the process of being closed under Massachusetts law.
The Company believes that the issues regarding the site are under
discussion among state and federal agencies due to the proximity
of the site to the landfill and the composition of waste at the
site. Therefore, it is premature to make a determination whether
this matter may have a material adverse effect on the Company's
operating results, financial condition or cash flows. The PRP
Group's accountant's records reflect group expenses since
December 31, 1990, independent of legal fees, in the amount of
$2,270,320 as of December 31, 2001. The Company's share of costs
for the RI/FS is being allocated on an interim basis at 12.5177%.
Due to the withdrawal of a PRP, however, the Company expects that
the respective shares of these costs in the future will be
reallocated among the remaining members of the PRP Group.
In September 1991, the Company signed 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 for remediation of the ground water at this site
is through natural attenuation, which will be monitored for a
period of up to 24 years. Estimates of the costs of remediation
range from approximately $2.8 million for natural attenuation to
approximately $7.8 million for other remediation. Based on
current participation, the Company's share is 7.99% of
approximately 75% of the costs. Management believes that this
site will not result in any material adverse effect on the
Company's operating results, financial condition or cash flows
based on the results of periodic tests conducted at the site.
In 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.
Therefore, it is premature to make a determination whether this
matter may have a material adverse effect on the Company's
operating results, financial condition or cash flows.
(b) No material pending legal proceedings were
terminated during the three-month period ended December 31, 2001.
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 84 Chairman of the Board and Director
John A. Tulin 55 President and Chief Executive Officer
and Director
James E. Tulin 50 Senior Vice President - Merchandising
and Director
Paul Duckett 61 Senior Vice President - Distribution
and Retail Store Operations
Melvin Goldfeder 65 Senior Vice President - Special
Markets Division
Jerold R. Kassner 45 Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
Eric P. Luft 46 Senior Vice President - Men's
Division and Director
W. Barry Heuser 54 Senior Vice President - Belt Division
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.
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.
Jerold R. Kassner has been Senior Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company since
July 1999. Mr. Kassner joined the Company in November 1988 and
was elected Senior Vice President and Controller in September
1997.
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. Mr. Luft became a director of the Company in
December 2000.
W. Barry Heuser has been Senior Vice President - Belt
Division since September 2001. For more than five years prior to
September 2001, Mr. Heuser served as Vice President - Belt
Division.
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 Company's Common Stock finished trading in fiscal 2001
on the over-the-counter market under the symbol SNKI. The
following table sets forth for fiscal 2001 and fiscal 2000 the
range of high and low sales prices of the Company's Common Stock
as reported by the Nasdaq SmallCap Market through May 24, 2001
and thereafter in the over-the-counter market for the calendar
quarters indicated. All share and per share amounts have been
restated to reflect the effect of the one-for-three reverse stock
split that was effective August 7, 2000.
2001 2000
Quarter High Low High Low
First $.91 $.53 $4.50 $2.25
Second .65 .35 3.19 1.50
Third .51 .23 2.25 1.13
Fourth .30 .13 1.38 .50
At March 31, 2002, there were 1,316 holders of record of
the Company's Common Stock.
During the second quarter, the Company announced that it had
received notice from Nasdaq indicating that it was not in
compliance with Nasdaq's $1 minimum bid price requirement for
continued listing of its shares of Common Stock on the Nasdaq
SmallCap Market. The Company also announced that it received
notice from Nasdaq that it was not in compliance with Nasdaq's
requirement for continued listing due to a delinquency in the
filing of its Annual Report on Form 10-K. On May 25, 2001, the
Company was advised by Nasdaq that the shares of its Common Stock
would no longer be listed on the Nasdaq SmallCap Market. The
Company's shares are now traded in the over-the-counter market.
The Company historically has not relied on the public equity
markets for external funding and does not anticipate any adverse
financial consequences resulting from Nasdaq's action.
The Company's financing agreement with its lender prohibits
the payment of cash dividends on the Company's Common Stock (see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations"). 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.
The Company did not issue any unregistered securities during
the past year.
Item 6. Selected Financial Data.
Swank, Inc.
Financial Highlights
For each of the Five Years
Ended December 31
(In thousands, except share and
per share data) 2001 2000 1999 1998 1997
Operating Data:
Net sales $ 88,568 $ 101,648 $ 104,748 $ 94,737 $ 88,486
Cost of goods sold 61,887 69,253 69,444 62,149 55,908
Gross profit 26,681 32,395 35,304 32,588 32,578
Selling and administrative
expenses 31,097 36,308 34,346 32,953 33,670
Restructuring expenses 473 1,496 - - -
Income (loss) from operations (4,889) (5,409) 958 (365) (1,092)
Interest expense, net 1,422 1,869 1,305 1,175 585
Income (loss) before income
taxes and minority interest (6,311) (7,278) (347) (1,540) (1,677)
Provision (benefit) for income
taxes (267) 3,890 (379) (579) (130)
Minority interest in net loss
of consolidated subsidiary - 185 - - -
Income (loss) from continuing
operations (6,044) (10,983) 32 (961) (1,547)
Discontinued operations:
(Loss) from discontinued
operations, net of income tax
provision (benefit) of (3,717) (1,012) 2,355 4,623 6,394
$(505), $689, $1,340,
$3,014 and $131
(Loss) on disposal of
discontinued operations, net
of income tax (benefit) of (5,957) - - - -
$(810)
Net income (loss) from
discontinued operations (9,674) (1,012) 2,355 4,623 6,394
Net income (loss) $ (15,718) $ (11,995) $ 2,387 $ 3,662 $ 4,847
Share and per share
information:
Weighted average common
shares outstanding 5,522,490 5,522,513 5,522,305 5,511,287 5,458,945
Net income (loss) per common
share:
Continuing operations $ (1.10) $ (1.99) $ .01 $ (.17) $ (.28)
Discontinued operations (1.75) (.18) .42 .83 1.17
Net income (loss) per
common share $ (2.85) $ (2.17) $ .43 $ .66 $ .89
Weighted average common
shares outstanding assuming
dilution 5,522,490 5,522,513 5,561,286 5,581,712 5,477,577
Net income (loss) per common
share assuming dilution:
$ (1.10) $ (1.99) $ .01 $ (.17) $ (.28)
Continuing operations
Discontinued operations (1.75) (.18) .42 .83 1.17
Net income (loss) per common
share assuming dilution $ (2.85) $ (2.17) $ .43 $ .66 $ .89
Current assets $ 34,459 $ 51,936 $ 61,271 $ 61,733 $ 48,840
Current liabilities 24,823 32,430 30,842 32,228 24,485
Net working capital 9,636 19,506 30,429 29,505 24,355
Property, plant and equipment,
net 2,581 3,978 6,046 5,574 6,157
Total assets 43,211 62,497 74,940 72,969 59,949
Additions to property, plant
and equipment $ 660 $ 583 $ 1,520 $ 1,156 $ 1,155
Depreciation and amortization $ 904 $ 1,456 $ 1,616 $ 2,181 $ 2,167
Long-term obligations 12,747 8,821 9,999 9,563 8,603
Stockholders' equity 5,641 21,246 33,594 31,178 26,861
Stockholders' equity per
weighted average common share
assuming dilution $ 1.02 $ 3.85 $ 6.04 $ 5.59 $ 4.90
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
2001 vs. 2000
Overview
Net sales decreased 13% to $88,568,000 in 2001 compared to
$101,648,000 in 2000 and gross profit decreased to $26,681,000 in
2001 from $32,395,000 or 18% primarily attributed to a relatively
weak climate and higher promotional expenses and customer
returns.
As part of its strategy to focus on its core strength in the
men's accessories business, the Company disposed of certain of
its women's costume jewelry assets on July 23, 2001 pursuant to
an Agreement dated July 10, 2001 (the "Agreement") between the
Company and K&M Associates, L.P. ("K&M"). Pursuant to the
Agreement, the Company sold to K&M inventory, accounts receivable
and miscellaneous other assets relating to the Company's Anne
Klein, Anne Klein II, Guess?, and certain private label women's
costume jewelry businesses. The purchase price paid by K&M to the
Company at the closing of the transactions contemplated by the
Agreement was approximately $4,600,000. K&M also assumed the
Company's interest in its respective license agreements with Anne
Klein, a division of Kasper A.S.L., Ltd., and Guess? Licensing
Inc. and certain specified liabilities. The cash portion of the
purchase price was subject to adjustment. In connection with the
sale to K&M, the Company and K&M entered into an agreement
whereby the Company provided certain operational and
administrative services to and on behalf of K&M for a period of
time extending from the closing date through December 31, 2001
(the "Transition Agreement"). Under the terms of the Transition
Agreement, the Company was reimbursed by K&M for its direct costs
associated with performing the transition services.
Contemporaneously with the sale of the women's jewelry
assets to K&M, the Company discontinued its remaining women's
jewelry operations. APB Opinion No. 30 requires that the results
of continuing operations be reported separately from those of
discontinued operations for all periods presented and that any
loss on disposal of a segment of a business be reported in
conjunction with the related results of discontinued operations.
Accordingly, the Company has separated results from continuing
operations and results from discontinued operations for all prior
periods presented. For the 12 months ended December 31, 2001, the
Company recorded a loss of $5,957,000 net of income tax benefit
of $810,000, including net income of $521,000 recorded in the
fourth quarter, to reflect the difference between the net book
value and the cash proceeds received for the assets sold to K&M;
a reserve adjustment associated with certain inventory not sold
to K&M; a provision for the remaining obligations under certain
license agreements not assigned to K&M; and accruals for other
expenses directly associated to the disposition including legal
and broker's fees.
The Company is currently engaged in the manufacture, sale
and distribution of men's belts, leather accessories, suspenders,
and men's jewelry. These 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.
Net sales
Net sales for the year ended December 31, 2001 decreased by
$13,080,000 or 12.9% compared to 2000. The decrease in net sales
was primarily due to lower shipments of certain branded and
private label men's accessories programs, offset in part by
shipments of the Company's new Tommy Hilfiger merchandise
collections which were first shipped during the second quarter.
The reduction in shipments of existing merchandise programs was
mainly due to a relatively weak retail climate and an economy
characterized by poor corporate earnings and extreme volatility
in the financial markets, which led to a decline in consumer
confidence that prevailed for most of the year. This environment
was exacerbated by the tragic events of September 11 and the
subsequent disruption in economic activity. As the economy
softened further during the fall months, the department store
sector suffered disproportionately as consumers generally shifted
their focus to other retail channels of distribution. Year to
year sales comparisons, especially during the Company's spring
selling season, were also adversely affected by substantial
shipments of men's belts and personal leather goods made during
the first quarter of 2000 that accompanied new product
introductions at several major accounts.
Net sales for the year ended December 31, 2001 were also
adversely impacted by an increase in customer returns and in-
store markdown allowances associated with the weak economy
generally, and a heavily promotional holiday season marked by
deeper and more frequent price discounting by retailers relative
to prior years, offset partially by the launch of the Company's
new Tommy Hilfiger merchandise collection. The Company regularly
participates in promotional events designed to stimulate sales of
its merchandise or expand its market share within certain retail
channels.
Net sales in 2001 were favorably affected by the returns
adjustment made in the second quarter. As described in Note B to
the accompanying consolidated financial statements, the Company
reduces net sales and cost of sales by the estimated effect of
future returns of current period shipments. Each spring upon the
completion of processing returns from the preceding fall season,
the Company records adjustments to net sales in the second
quarter to reflect the difference between customer returns of
prior year shipments actually received in the current year and
the estimate used to establish the allowance for customer returns
at the end of the preceding fiscal year. These adjustments
increased net sales by $479,000 and $1,740,000 for the twelve
month periods ended December 31, 2001 and 2000, respectively.
Gross profit
Gross profit for the years ended December 31, 2001 and 2000
was $26,681,000 and $32,395,000 respectively, reflecting a
decrease of $5,714,000 or 17.6% compared to last year. Gross
profit expressed as a percentage of net sales for the year ended
December 31, 2001 was 30.1%, compared to 31.9% last year.
The decrease in gross profit both in dollars and expressed
as a percentage of net sales for the year ended December 31, 2001
was primarily due to lower net sales; a reduction in gross margin
resulting from an unfavorable sales mix; higher in-store markdown
allowances and other allowances recorded during the year to
support certain new and existing merchandise programs; and a
higher level of customer returns. Gross margin was favorably
impacted by lower inventory-related costs as the Company
generally was able to reduce inventory levels during the year in
response to lower net sales. As discussed above, the retail
environment during the important 2001 holiday season saw an
unprecedented level of promotional activity as retailers in
general and department stores in particular struggled with the
affects of recession and reduced consumer spending in the
aftermath of the September 11 attacks.
Included in gross profit are annual second quarter
adjustments to record the variance between customer returns of
prior year shipments actually received in the current year and
the allowance for customer returns which was established at the
end of the preceding fiscal year. The adjustment to net sales
recorded in the second quarter described above resulted in a
favorable adjustment to gross profit of $481,000 and $985,000 for
the years ended December 31, 2001 and 2000 respectively.
Selling and Administrative Expenses
Selling and administrative expenses for the year ended
December 31, 2001 fell $5,211,000 or 14.4% compared to the prior
year. Selling expenses decreased by $3,031,000 or 12.1% and
totaled 24.9% of net sales for the year ended December 31, 2001
compared to 24.7% last year. The decrease in selling expenses
was primarily due to lower compensation costs including salaries,
wages, and fringe benefits resulting from the Company's
restructuring program; reduced controllable expenses including
travel, entertainment, and other discretionary spending; and
decreased variable selling costs associated with lower net sales.
Advertising and promotional expenses in support of the Company's
men's accessories business totaled 2.8% of net sales for the year
ended December 31, 2001 compared to 2.3% in 2000.
Administrative expenses for the year ended December 31, 2001
decreased by $2,179,000 or 19.4%. Expressed as a percentage of
net sales, administrative expenses fell to 10.2% compared to
11.1% last year. Administrative expenses in 2001 were favorably
affected by a reduction in salary and other compensation related
costs, lower travel and entertainment expenses, and a reduction
in bad debt expense, all partially offset by increased
professional fees incurred primarily in connection with the
transactions described in Notes A and C to the consolidated
financial statements. Administrative expenses for the year ended
December 31, 2000 included a non-recurring gain of $476,000
recorded during the first quarter of 2000 resulting from the
receipt of common shares associated with the conversion of a
mutual life insurance company to a stock corporation (commonly
known as a demutualization).
Restructuring Charge
During the first quarter of 2001, management determined that
the Company should intensify its efforts to reduce costs
throughout the organization to streamline operations and reduce
net cash requirements. As a consequence of this strategy, the
Company recorded a restructuring charge of $845,000 in the first
quarter of 2001 for employee severance and related payroll costs
associated with staff reductions primarily within certain sales
and administrative departments affecting approximately 93
employees. Of the $845,000 charge, $372,000 has been presented
within to discontinued operations and $473,000 is included in the
results of continuing operations. No restructuring charges were
recorded during the fourth quarter.
The restructuring charges have been stated separately in the
Consolidated Statements of Operations. As of December 31, 2001,
approximately $837,000 had been paid and $8,000 is included in
Other Liabilities in the Consolidated Balance Sheet. The
remaining liability will be paid by the end of the first quarter
of 2002. While the Company currently does not anticipate any
further material changes to the restructuring charge, management
continues to review the status of its global sourcing and support
operations for further efficiencies and cost reduction
opportunities.
On April 6, 2001, the Company ceased production operations
at Joyas y Cueros de Costa Rica, S.A. ("Joyas y Cueros"), its
costume jewelry manufacturing facility located in Cartago, Costa
Rica. Joyas y Cueros had been engaged in the manufacture of
certain men's and women's jewelry items for the Company as a
majority-owned subsidiary since 1999. Management determined that
Joyas y Cueros could not be competitive with other jewelry
resources in light of recent changes in women's jewelry fashion
trends and improved quality and price competitiveness from Asian
vendors. In connection with the plant closure, Joyas y Cueros
recorded charges of approximately $1,218,000 during the fourth
quarter of 2000 to reflect a write-down in the value of its
manufacturing machinery and equipment and raw materials
inventory. Joyas y Cueros also recorded a charge for severance
and associated costs of approximately $264,000 in 2001 in
connection with the termination of its manufacturing operations.
Approximately 150 employees were terminated in connection with
the restructuring and plant closure. Restructuring charges
associated with Joyas y Cueros were included in Cost of Sales on
the Consolidated Statements of Operations for the years ending
December 31, 2001 and 2000. The Company has completed the sale
and liquidation of Joyas y Cueros' remaining assets in 2001.
On March 16, 2000, the Company announced a plan to cease
production operations at its jewelry manufacturing facility
located in Attleboro, Massachusetts and transfer its remaining
domestic jewelry production requirements to other vendors.
Manufacturing operations at Attleboro ceased in May of 2000
following the orderly transition of merchandise requirements to
other resources. Management concluded early in 2000, that its
Attleboro manufacturing facility could no longer be competitive
in light of the increasing pressure to sustain gross margins at
both the wholesale and retail level and that maintaining a
domestic large-scale jewelry manufacturing operation was not
economically viable. In connection with the closure, the Company
recorded a restructuring charge of $2,041,000, of which,
approximately $545,000 was allocated to loss from discontinued
operations, against income from operations for the year ended
December 31, 2000, to cover employee severance and other payroll
related costs. Additional integration costs of $1,849,000 were
incurred during the fourth quarter of 2000 in connection with
obsolescence charges for certain jewelry raw material and work in
process inventories. During 2001, the Company paid the remaining
$308,000 of outstanding restructuring obligations relating to the
plant closure which had been included in Other Current
liabilities at December 31, 2000. The restructuring charges
recorded in 2000 were based upon the Company's estimates of the
cost of the employee terminations including outplacement fees,
severance, and curtailment losses related to certain post-
retirement benefits.
Interest Expense
Net interest expense decreased $447,000 or 23.9% for the
year ended December 31, 2001 compared to 2000. The decrease was
primarily due to a reduction of approximately 150 basis points in
the Company's average borrowing costs in 2001 compared to the
prior year (see "Interest Charges" and "Liquidity and Capital
Resources"). The Company also reduced its average outstanding
revolving credit balance in 2001 by approximately $5,300,000
compared to 2000, as the proceeds of the sale of the Company's
Norwalk manufacturing facility and women's costume jewelry
division were both applied to outstanding revolving credit
balances as described in Note A to the consolidated financial
statements.
2000 vs. 1999
Net sales
Net sales for the year ended December 31, 2000 decreased
by $3,100,000 or 3.0% compared to 1999. The decline in net sales
was primarily due to an increase in customer allowances and
decreases in jewelry, suspenders, and to a lesser extent, private
label small leather goods volume, all partially offset by an
increase in domestic branded belt sales. The decrease in jewelry
shipments was primarily due to a reduction in requirements from
certain department store customers that reduced their retail
jewelry buying plans in 2000 after rolling out new programs in
1999. The increase in belt shipments was mainly attributable to
increases in the Company's Geoffrey Beene, John Henry, and
Claiborne for Men lines. During the third quarter of 2000, the
Company, Yves Saint Laurent Fashion AG, and Yves Saint Laurent of
America, Inc. ("YSL") agreed to terminate the license agreements
for the manufacture and sale of costume jewelry, belts, and small
leather goods. The Company commenced shipments of new designer
merchandise during the second half of 2000 to replace its YSL
business. The Company also introduced an important new private
label small leather goods program in 1999 that resulted in
increased shipments in that year relative to 2000.
Net sales in 2000 were affected by the returns
adjustments made in the second quarter. As described in Note B to
the accompanying consolidated financial statements, the Company
reduces net sales and cost of sales by the estimated effect of
future returns of current period shipments. Each spring upon the
completion of processing returns from the preceding fall season,
the Company records adjustments to net sales in the second
quarter to reflect the difference between customer returns of
prior year shipments actually received in the current year and
the estimate used to establish the allowance for customer returns
at the end of the preceding fiscal year. These adjustments
increased net sales by $1,740,000 and decreased net sales by
$488,000 for the twelve month periods ended December 31, 2000 and
1999, respectively.
Gross profit
Gross profit for the year ended December 31, 2000
decreased by $2,909,000 or 8.2% compared to 1999. Gross profit
expressed as a percentage of net sales fell to 31.9% from 33.7%
in 1999.
The decrease in gross profit was mainly due to lower net
sales compared to 1999, higher inventory obsolescence costs
associated with the closure of the Company's domestic jewelry
manufacturing facility, and losses incurred at Joyas y Cueros,
the Company's Costa Rican subsidiary. The Company closed its
domestic jewelry manufacturing facility during the second quarter
of 2000 in response to ongoing changes in product sourcing
strategies.
Included in gross profit are annual second quarter
adjustments to record the variance between customer returns of
prior year shipments actually received in the current year and
the allowance for customer returns which was established at the
end of the preceding fiscal year. The adjustment to net sales
recorded in the second quarter described above resulted in a
favorable adjustment to gross profit of $985,000 and an
unfavorable adjustment of $305,000 for the years ended December
31, 2000 and December 31, 1999 respectively.
Selling and Administrative Expenses
Selling and administrative expenses increased by $1,962,000
or 5.7% in 2000 compared to the prior year and, expressed as a
percentage of net sales, increased to 35.7% compared to 32.8% in
1999. The increase in selling expenses was due principally to the
decrease in net sales and higher advertising and promotional
expenditures incurred to support certain licensed merchandise
collections.
Administrative expenses increased in 2000 principally due to
higher professional fees, partially offset by a gain of $476,000
recorded during the first quarter resulting from the receipt of
common shares associated with the conversion of a mutual life
insurance company to a stock corporation (commonly known as a
"demutualization"). During the second quarter of 1999, the
Company recorded an additional expense of $550,000 for severance
benefits associated with a voluntary workforce reduction program
at one of the Company's manufacturing facilities. This expense
was largely offset by a gain of $500,000 also recorded during
1999's second quarter in connection with the settlement of
litigation. Advertising and promotional expenditures as a
percentage of net sales increased to 2.3% in 2000 from 1.9% in
1999 primarily due to lower net sales and an increase in
cooperative advertising and other obligations payable to the
Company's licensors.
Restructuring Charge
On March 16, 2000, the Company announced a plan to cease
production operations at its jewelry manufacturing facility
located in Attleboro, Massachusetts and transfer its remaining
domestic jewelry production requirements to other vendors.
Manufacturing operations at Attleboro ceased in May 2000
following the orderly transition of merchandise requirements to
other resources. Management concluded that its Attleboro
manufacturing facility could no longer be competitive in light of
the increasing pressure to sustain gross margins at both the
wholesale and retail level and that maintaining a domestic large-
scale jewelry manufacturing operation was not economically
viable. In connection with the closure, the Company recorded a
restructuring charge of $2,041,000 against income from operations
for year ended December 31, 2000, to cover employee severance and
other payroll related costs. Additional integration costs of
$1,849,000 were incurred during the fourth quarter in connection
with obsolescence charges for certain jewelry raw material and
work in process inventories. As of December 31, 2000,
approximately $1,403,000 had been paid, and $330,000 has been
reported as a curtailment loss on post-retirement benefits. The
Company expects to pay the remaining $308,000, which was included
in Other Current liabilities at December 31, 2000, by July 31,
2001. The restructuring charge was based upon the estimates of
the cost of the employee terminations including outplacement
fees, severance, and curtailment losses related to certain post-
retirement benefits. While the Company currently does not
anticipate any further material changes to the restructuring
charge, management continues to review the status of its global
sourcing and support operations for further efficiencies and cost
reduction opportunities.
Interest Expense
Net interest expense increased $564,000 or 43.2% for the
year ended December 31, 2000 compared to 1999. The increase was
primarily due to an increase in the Company's average borrowing
costs in 2000 compared to the prior year (see "Interest Charges"
and "Liquidity and Capital Resources").
Average monthly borrowings and weighted average borrowing
interest rates under the Company's revolving credit facility
were, respectively $17,828,000 and 8.45% in 2001; $23,142,000 and
9.94% in 2000; and $22,995,000 and 7.69% in 1999.
Provision for Income Taxes
The Company recorded an income tax benefit at a combined
federal and state effective tax rate of 9.2% and an income tax
provision at a combined federal and state effective rate of 34.4%
for 2001 and 2000, respectively. The effective tax rates for both
2001 and 2000 were impacted by the recording of valuation
allowances on the Company's net deferred tax assets of $9,964,000
and $5,208,000, respectively (see Note E). The effective tax
rates were also effected by differences associated with
nontaxable life insurance benefits, the operating losses incurred
by Joyas y Cueros and other items. The Company recorded an income
tax benefit in 1999 at a combined federal and state effective tax
rate of 31.4% after giving effect to the disposal of the women's
division. The effective rate in 1999 reflects the effects of
certain tax rate differences associated with nontaxable life
insurance benefits, the operating loss incurred by Joyas y
Cueros, resolution of a prior year charitable contributions
carryback adjustment, and other items.
Net Income Per Share
Net income per share includes shares held by the Company's
employee stock ownership plan and deemed to be allocated to
participants. Net income per share assuming full dilution
includes the effects of options.
Promotional Expenditures
The Company routinely makes advertising and promotional
expenditures to enhance its business and to support the
advertising and promotion activity of its licensors. These
expenses increased by $138,000 in 2001 due to additional national
advertising costs. Advertising and promotional expenditures
increased $372,000 in 2000 compared to 1999 due to additional
cooperative and national advertising costs. Expressed as a
percentage of net sales, excluding net sales from the Company's
factory outlets stores of $4,465,000, $5,879,000 and $6,072,000
in 2001, 2000 and 1999, respectively, the following table
summarizes the various promotional expenses incurred by the
Company which are included in selling and administrative
expenses:
2001 2000 1999
Cooperative advertising $756 $898 $589
Displays 345 410 536
National advertising and other 1,255 910 721
Total $2,356 $2,218 $1,846
Percentage of net sales 2.8% 2.3% 1.9%
Liquidity and Capital Resources
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company experienced operating
losses and negative cash flows from operating activities for the
year ended December 31, 2001, which the Company was able to fund
from the bank facility in place. These factors raise substantial
doubt about the ability of the Company to continue to operate as
a going concern. The Company's success going forward will be
dependent on, among other things, attaining adequate sales
revenue; continuing the current program of cost control
initiatives; maintaining its cash requirements within its amended
revolving credit agreement; and ultimately, returning to
profitability.
Over the past two years, the Company has taken certain
steps and has instituted several initiatives intended to improve
its results from operations and cash flows, including the closing
of its Attleboro, Massachusetts and Cartago, Costa Rica jewelry
manufacturing facilities; entering into a sale-leaseback
transaction with respect to its South Norwalk, Connecticut
manufacturing facility; selling certain assets and
contemporaneously discontinuing the remaining operations
associated with its women's costume jewelry division; and,
instituting process improvements designed to eliminate waste and
improve operating efficiencies. The Company has already commenced
and/or completed several of the foregoing initiatives, including
the closure of the Attleboro, Massachusetts manufacturing
facility during the second quarter of 2000 that resulted in a
restructuring charge of $2,041,000 and a charge during the fourth
quarter of 2000 of $2,371,000 (consisting of $1,849,000 and
$522,000 relating to the Attleboro and Costa Rica facility
closures, respectively) for inventory obsolescence associated
with raw material and work-in-process inventory; the closure of
the Costa Rica manufacturing facility during the second quarter
of 2001; the sale of certain assets associated with and the
discontinuation of the Company's women's costume jewelry division
resulting in a loss on disposition of $5,957,000; the institution
of improved processes within certain purchasing and sourcing
functions in an attempt to aggressively reduce inventory levels
in response to a decline in incoming orders; and the realignment
of production levels to more accurately reflect projected
shipping requirements.
As a result of these and other actions, inventory levels
were lower by $11,442,000 at December 31, 2001 compared with the
prior year. In addition, in April 2001, the Company received a
refund of $2,251,000 from the Internal Revenue Service and
anticipates receiving an additional refund of $3,032,000 in 2002
for federal income taxes paid in prior years. As discussed above,
during the second quarter, the Company completed the sale of its
South Norwalk, Connecticut manufacturing facility at a purchase
price of approximately $6,100,000 and contemporaneously entered
into a lease-back of that property for a period of ten years.
During the third quarter, the Company also completed the sale of
certain assets associated with its women's costume jewelry
division at a purchase price of approximately $4,600,000. The net
proceeds of both transactions were used to reduce the Company's
outstanding revolving credit balance.
In July 1998, the Company signed a new five year $30,000,000
revolving credit agreement (the "1998 Revolving Credit
Agreement") with PNC Bank, National Association (the "Bank"). The
1998 Revolving Credit Agreement is collateralized by
substantially all of the Company's domestic accounts receivable,
inventory and machinery and equipment. In addition, the 1998
Revolving Credit Agreement prohibits the Company from payment of
dividends, and imposes limits on capital expenditures and
additional indebtedness for borrowed money. The Company is
required to pay a commitment fee monthly of .375% per annum on
the difference between the average daily borrowings outstanding
and the maximum amount available. A substantial percentage 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 the
holiday season. As a result, the Company typically builds
inventory during the first three quarters of the year to meet the
seasonal demand and accounts receivable peak in the fourth
quarter. In 2001, the Company did not request or obtain a
temporary increase in the 1998 Revolving Credit Agreement. In
both 2000 and 1999, the Company requested and obtained a
temporary increase to $33,000,000 for the period October 18, 2000
through December 31, 2000 and for the period August 1, 1999
through November 30, 1999, respectively, in anticipation of peak
seasonal working capital needs.
On April 27, 2001, the Company entered into a Fifth
Amendment of the 1998 Revolving Credit Agreement (the "Fifth
Amendment"). The Fifth Amendment modified the 1998 Revolving
Credit Agreement by, among other things, deleting the requirement
to maintain a Fixed Charge Coverage Ratio; revising the minimum
Net Tangible Worth covenants for March 31, 2001, June 30, 2001,
September 30, 2001 and December 31, 2001; reducing the permitted
seasonal collateral overadvance from $3,000,000 to $1,500,000;
setting the interest rate on borrowings equal to the Bank's
prime rate plus 1.50% and eliminating the Eurodollar borrowing
option; and setting the termination date of the 1998 Revolving
Credit Agreement at June 25, 2002. In addition, the Bank
established a reserve against the Company's women's jewelry
inventory, as permitted by the 1998 Revolving Credit Agreement,
as amended, that decreased availability by approximately
$3,000,000 pending the sale of those assets. As further described
in Note A to the accompanying consolidated financial statements,
the Company sold certain of its women's jewelry inventory on July
23, 2001 as part of a plan to exit the women's costume jewelry
business and accordingly, the reserves pertaining to this
inventory have been eliminated.
At December 31, 2000, the Company was not in compliance with
the Bank's Fixed Charge Coverage and Tangible Net Worth ratios as
required by the 1998 Revolving Credit Agreement, as amended. The
Bank subsequently waived those requirements as of and for the
quarter ended December 31, 2000. The Company was not in
compliance with the Tangible Net Worth ratio for the quarter
ended March 31, 2001. On June 8, 2001, the Company entered into
a Sixth Amendment of the 1998 Revolving Credit Agreement (the
"Sixth Amendment"). The Sixth Amendment modified the 1998
Revolving Credit Agreement by, among other things, revising the
minimum Tangible Net Worth covenants for the quarters ending
March 31, 2001, June 30, 2001, September 30, 2001, and December
31, 2001.
On July 16, 2001, the Company entered into a Seventh
Amendment of the 1998 Credit Agreement (the "Seventh Amendment")
in connection with the sale of certain of its women's jewelry
assets to K&M. The Seventh Amendment, among other things, reduced
the maximum amount of revolving advances from $30,000,000 to
$25,000,000 at all times subsequent to the sale of the women's
jewelry assets and removed the applicable women's jewelry
accounts receivable and inventory from the collateral base. The
Seventh Amendment also provided for the bank's consent to the
sale.
At December 31, 2001, the Company was not in compliance with
the Bank's Tangible Net Worth ratio as required by the 1998
Revolving Credit Agreement, as amended. The Bank subsequently
waived those requirements as of and for the quarter ended
December 31, 2001. On May 7, 2002, the Company entered into an
Eighth Amendment of the 1998 Revolving Credit Agreement (the
"Eighth Amendment"). The Eighth Amendment modified the 1998
Revolving Credit Agreement by, among other things, extending the
termination date of the 1998 Revolving Credit Agreement to
June 25, 2003; reducing the maximum amount of revolving advances
to $23,000,000 from $25,000,000; and revising the minimum Tangible
Net Worth covenants for the quarters ending March 31, 2002, June 30,
2002, September 30, 2002, and December 31, 2002. The Eighth
Amendment also provides for a seasonal overadvance of $1,500,000
for the period July 1, 2002 through October 15, 2002 (the
"Seasonal Overadvance") and requires that John and Marshall Tulin
furnish to the Bank a guaranty, in an amount not to exceed $750,000,
to secure the repayment of the Seasonal Overadvance. (see Note 0)
Although no assurances can be given, the Company believes
that attaining adequate sales revenue, continuing the current
program of cost control initiatives, and maintaining cash
requirements within the amended revolving credit agreement terms
will enable the Company to continue as a going concern.
Accordingly, the consolidated financial statements do not include
any adjustments related to the recoverability and classification
of recorded assets or liabilities or any other adjustments that
would be necessary should the Company be unable to operate as a
going concern in its present form.
The Company announced in March 2001 that it had received
notice from Nasdaq indicating that it was not in compliance with
Nasdaq's $1 minimum bid price requirement for continued listing
of its shares of Common Stock on the Nasdaq SmallCap Market. The
Company also announced that it received notice from Nasdaq that
it was not in compliance with Nasdaq's requirement for continued
listing due to a delinquency in the filing of its Annual Report
for the year ending December 31, 2000 on Form 10-K. On May 25,
2001, the Company was advised by Nasdaq that the shares of its
Common Stock would no longer be listed on the Nasdaq SmallCap
Market. The Company's shares are now traded in the over-the-
counter market. Because the Company historically has not relied
on the public equity markets for external funding, it does not
anticipate any adverse financial consequences resulting from
Nasdaq's action.
In the ordinary course of business, the Company is
contingently liable for performance under a letter of credit of
approximately $580,000 at December 31, 2001. The Company is
required to pay a fee quarterly equal to 1.75% per annum on the
outstanding letter of credit.
The following chart summarizes the Company's contractual
obligations as of December 31, 2001:
Dollars in thousands Payments Due by Period
Less than Between 2- Between After 5
Total 1 year 3 years 4-5 years
years
Operating leases $22,462 $3,444 $3,120 $2,931 $12,967
Minimum payments
required under
Royalty agreements $8,555 $3,722 $4,483 $350 -
Significant Accounting Policies
Management believes that the accounting policies discussed
below are important to an understanding of the Company's
financial statements because they require management to exercise
judgment and estimate the effects of uncertain matters in the
preparation and reporting of financial results. Accordingly,
management cautions that these policies and the judgments and
estimates they involve are subject to revision and adjustment in
the future. While they involve judgment, management believes the
other accounting policies discussed in footnote B to the
consolidated financial statements are also important in
understanding the statements.
The Company records revenues net of sales allowances,
including cash discounts, in-store customer allowances, and
customer returns. Sales allowances are estimated using a number
of factors including historical experience, current trends in the
retail industry, and individual customer and product experience.
The Company determines allowances for doubtful accounts
using a number of factors including historical collection
experience, general economic conditions, and the amount of time
an account receivable is past its payment due date. In certain
circumstances where it is believed a customer is unable to meet
its financial obligations, a specific allowance for doubtful
accounts is recorded to reduce the account receivable to the
amount believed to be collectable.
The Company determines the valuation allowance for deferred
tax assets based upon projections of future taxable income or
loss for future tax years in which the temporary differences that
created the deferred tax asset were anticipated to reverse.
Cash flows
Cash used in operations totaled $427,000 in 2001 compared to
cash used in operations of $3,250,000 in 2000. Cash used in
operations in 2001 and 2000 was due principally to the net loss
in both years, and decreases in certain accrued and other long
term liabilities. Cash provided by operations in both years was
due mainly to depreciation and amortization and to decreases in
accounts receivable, inventory, and deferred taxes. Working
capital decreased by $9,870,000 in 2001 due to reductions in
accounts receivable, inventory, and deferred income taxes and
increases in accounts payable, all partially offset by a
reduction in short term borrowings. Working capital decreased
$10,923,000 in 2000 due to decreases in accounts receivable,
inventory, deferred taxes and an increase in short-term
borrowings, partially offset by increased taxes recoverable and a
net decrease in all other current liabilities. The sale of
certain assets associated with the women's costume jewelry
division and of the company's South Norwalk, Connecticut
manufacturing facility provided $10,362,000 in cash from
investing activities. Capital expenditures were $660,000 and
$583,000 in 2001 and 2000, respectively, and life insurance
premiums used principally to fund deferred compensation were
$257,000 and $788,000, in 2001 and 2000, respectively. Cash used
in financing activities totaled $8,870,000 in 2001 due to a net
reduction in the Company's short term borrowings following the
application of cash proceeds from the sales of the women's
jewelry assets and the Connecticut manufacturing facility. In
2000, financing activities provided $3,844,000 primarily from
increases in net short term borrowings, partially offset by
repayments of long-term debt and by advances to the retirement
plan.
Capital Expenditures
The Company expects that cash from operations and
availability under the 1998 Revolving Credit Agreement will be
sufficient to fund its ongoing program of replacing aging
machinery and equipment to maintain or enhance operating
efficiencies.
Forward Looking Statements
Certain of the preceding paragraphs contain "forward
looking statements" which are based upon current expectations and
involve certain risks and uncertainties. Under the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995, readers should note that these statements may be impacted
by, and the Company's actual performance may vary as a result of,
a number of factors including general economic and business
conditions, continuing sales patterns, pricing, competition,
consumer preferences, and other factors.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards
Board (FASB) issued Statements of Financial Accounting Standards
No. 141, "Business Combination," (SFAS No. 141) and "Goodwill and
Other Intangible Assets," ("SFAS No. 142"). SFAS No. 141
requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141
also specifies criteria for determining intangible assets
acquired in a purchase method business combination that must be
recognized and reported apart from goodwill. SFAS No. 142
requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of
SFAS No. 142. The Company believes that the adoption of SFAS No.
141 and SFAS No. 142 will have no material effect on the
financial statements.
In July 2001, the FASB issued Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses the
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 will be effective for the Company
in the first quarter of 2002. The Company believes that the
adoption of SFAS No. 143 will have no material effect on the
financial statements.
In August 2001, the FASB issued Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses
financial accounting and reporting for the impairment or disposal
of long-lived assets and supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of
APB Opinion No. 30, "Reporting the Results of Operations" for a
disposal of a segment of a business. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001, with earlier
application encouraged. The Company believes that the adoption
of SFAS No. 144 will have no material effect on the financial
statements.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.
The Company sells products primarily to major retailers
within the United States. The Company's three largest customers
accounted for approximately 37% of consolidated trade receivables
(gross of allowances) in 2001 and 42% in 2000.
The Company, in the normal course of business, is
theoretically exposed to interest rate change market risk with
respect to borrowings under its revolving credit line. The
seasonal nature of the Company's business typically requires it
to build inventories during the course of the year in
anticipation of heavy shipments to retailers for the upcoming
holiday season. The Company's revolving credit borrowings
generally peak during the third and fourth quarters. Therefore, a
sudden increase in interest rates (which under the Company's
amended revolving credit facility is the prime rate plus 1.5%)
may, especially during peak borrowing periods, have a negative
impact on short-term results. The Company is also theoretically
exposed to market risk with respect to changes in the global
price level of certain commodities used in the production of the
Company's products. The Company routinely makes substantial
purchases of leather hides during the year for use in the
manufacture of men's belts. The Company also purchases men's
personal leather items from a third-party supplier. An
unanticipated material increase in the market price of leather
could increase the cost of these products to the Company and
therefore have a negative effect on the Company's results. To
minimize this risk, the Company has developed certain
manufacturing techniques and processes designed to maximize
leather yields and incorporate lesser cost materials.
Item 8. Financial Statements and Supplementary Data.
Swank, Inc. 2001 2000
Consolidated Balance Sheets as of December 31
(Dollars in thousands)
Assets
Current:
Cash and cash equivalents $ 974 $ 999
Accounts receivable, less allowances of $7,182 and
$8,989 9,067 14,386
Inventories, net:
Raw materials 3,334 6,347
Work in process 2,176 3,616
Finished goods 14,938 21,927
20,448 31,890
Deferred income taxes - 1,450
Income taxes recoverable 3,032 2,251
Prepaid and other 938 960
Total current assets 34,459 51,936
Property, plant and equipment, at cost:
Land and buildings 3,568 7,775
Machinery, equipment and software 11,133 11,427
Improvements to leased premises 1,704 1,049
Capital leases 1,471 1,471
17,876 21,722
Less accumulated depreciation and amortization 15,295 17,744
Net property, plant and equipment 2,581 3,978
Other assets 6,171 6,583
Total Assets $ 43,211 $ 62,497
Liabilities
Current:
Notes payable to banks $ 12,105 $ 21,104
Current portion of long-term debt 16 154
Accounts payable 3,700 3,120
Accrued employee compensation 1,891 3,367
Accrued royalties payable 2,065 1,895
Income taxes payable 349 -
Other liabilities 4,697 2,790
Total current liabilities 24,823 32,430
Long-term obligations and deferred credits 12,747 8,821
Total Liabilities 37,570 41,251
Commitments and contingencies (Note J)
Stockholders' Equity
Preferred stock, par value $1.00:
Authorized 1,000,000 shares
Common stock, par value $.10:
Authorized 43,000,000 shares:
issued 5,633,712 and 5,633,712 shares 563 563
Capital in excess of par value 1,440 1,440
Retained earnings 3,959 19,677
Accumulated other comprehensive income, net of tax (85) 88
5,877 21,768
Treasury stock at cost, 111,222 and 111,222
shares (236) (236)
Deferred employee benefits - (286)
Total stockholders' equity 5,641 21,246
Total Liabilities and Stockholders' Equity $ 43,211 $ 62,497
Swank, Inc.
Consolidated Statements of
Operations
For Each of the Three Years Ended
December 31
(In thousands, except share and per
share data) 2001 2000 1999
Net sales $ 88,568 $ 101,648 $ 104,748
Cost of goods sold 61,887 69,253 69,444
Gross profit 26,681 32,395 35,304
Selling and administrative expenses 31,097 36,308 34,346
Restructuring expenses 473 1,496 -
Income (loss) from operations (4,889) (5,409) 958
Interest expense, net 1,422 1,869 1,305
Income (loss) before income taxes
and minority interest (6,311) (7,278) (347)
Provision (benefit) for income taxes (267) 3,890 (379)
Minority interest in net loss of
consolidated subsidiary - 185 -
Income (loss) from continuing
operations $ (6,044) $ (10,983) $ 32
Discontinued operations:
(Loss) from discontinued operations,
net of income tax provision
(benefit) of $(505), $689 and $1,340 (3,717) (1,012) 2,355
(Loss) on disposal of discontinued
operations, net of income tax
(benefit) of $(810) (5,957) - -
Income (loss) from discontinued
operations (9,674) (1,012) 2,355
Net income (loss) $ (15,718) $ (11,995) $ 2,387
Net income (loss) per common share:
Continuing operations (1.10) $ (1.99) $ .01
Discontinued operations (1.75) (.18) .42
Net income (loss) per common share $ (2.85) $ (2.17) $ .43
Net income (loss) per common share
assuming dilution:
Continuing operations $(1.10) $ (1.99) $ .01
Discontinued operations (1.75) (.18) .42
Net income (loss) per common share
assuming dilution $ (2.85) $ (2.17) $ .43
Weighted average common shares
outstanding 5,522,490 5,522,513 5,522,305
Weighted average common shares
outstanding assuming dilution 5,522,490 5,522,513 5,561,286
The accompanying notes are an integral part of the consolidated
financial statements
Swank, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For Each of the Deferred Employee
Three Yeards Ended Benefits Treasury Stock
December 21, 2001, Accumlated
2000 and 1999 Common Capital in Other
(Dollars in Stock, Par Excess Of Comprehensive Retained Number Number
thousands) Value $.10 Par Value Income Earnings Of Shares Amount Of Shares Amount
Balance,
December 31,
1998 $ 1,689 $ 913 $ - $ 29,285 - $ - 333,519 $ (709)
Exercise of
stock options 1 13
Currency
translation
adjustment 15
Net income 2,387
Balance,
December 31,
1999 1,690 926 15 1,672 - - 333,519 (709)
One-for-three
reverse stock
split (1,127) 654 (222,346) 473
Advance to
retirement plan 180,658 (286)
Equity incentive
compensation (140)
Stock
repurchased 49
Currency
translation
adjustment 73
Net (loss) (11,995)
Balance,
December 31,
2000 563 1,440 88 19,677 180,658 (286) 111,222 (236)
Advance to
retirement plan (180,658) 286
Currency
translation
adjustment (88)
Minimum pension
liability, net
of tax (85)
Net (loss) (15,718)
Balance,
December 31, 111,222 $ (236)
2001 $ 563 $ 1,440 $ (85) $ 3,959 - $ -
The accompanying notes are an integral part of the consolidated
financial statements
Swank, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
For Each of the Three Years Ended December 31 2001 2000 1999
Cash flow from operating activities:
Net income (loss) $ (15,718) $ (11,995) $ 2,387
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operations:
Loss on disposal of division 5,957 - -
Provision (recoveries) for bad debts (226) (60) 304
Minority interest in net loss of
consolidated subsidiary. - (505) (284)
Depreciation and amortization 904 1,456 1,616
Loss on sale of equipment and investments 40 551 13
Amortization of deferred gain on sale of
building (311) - -
(Increase) decrease in deferred income
taxes 1,450 4,513 (1,894)
Compensation adjustment to capital in
excess of par - (140) -
(Increase) decrease in cash surrender
value of life insurance 416 997 (1,915)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable 4,096 2,002 (2,014)
Decrease in inventories 5,794 4,504 5,188
Decrease in prepaid and other 859 1,047 248
(Increase) in income taxes recoverable (1,091) (1,941) -
(Decrease) in accounts payable, accrued
and other liabilities (1,735) (981) (2,579)
Increase (decrease) in income taxes
payable 349 (1,701) (187)
Increase (decrease) in long-term
obligations and deferred credits (1,296) (997) 738
Net cash provided by (used in)
operations (512) (3,250) 1,621
Cash flow from investing activities:
Capital expenditures (660) (583) (1,520)
Proceeds from sale of building and equipment 5,822 445 -
Proceeds from sale of division 4,540 - -
Premiums on life insurance (257) (788) (707)
Net cash provided by (used in) investing
activities 9,445 (926) (2,227)
Cash flow from financing activities:
Borrowings under revolving credit agreements 47,523 71,221 70,733
Payments of revolving credit obligations (56,521) (66,879) (69,292)
Principal payments on long-term debt (158) (209) (363)
Proceeds from exercise of employees' stock
options - - 14
Payments from (advances to) retirement plan 286 (289) -
Net cash provided by (used in) financing
activities (8,870) 3,844 1,092
Currency translation adjustment (88) 73 15
Net increase (decrease) in cash and cash
equivalents (25) (259) 501
Cash and cash equivalents at beginning of year 999 1,258 757
Cash and cash equivalents at end of year $974 $ 999 $ 1,258
Cash paid during the year for:
Interest $1,551 $2,392 $ 1,806
Income taxes $160 $2,501 $ 3,400
Non-cash transactions:
Minority interest in acquisition of
subsidiary - - $ 789
The accompanying notes are an integral part of the consolidated
financial statements
Notes to Consolidated Financial Statements
A. The Company
The Company is engaged in the manufacture, sale and
distribution of men's belts, leather accessories, suspenders and
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. See Note L.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company experienced operating
losses and negative cash flows from operating activities for the
year ended December 31, 2001, which the Company was able to fund
from the bank facility in place. These factors raise substantial
doubt about the ability of the Company to continue to operate as
a going concern. The Company's success going forward will be
dependent on, among other things, attaining adequate sales
revenue; continuing the current program of cost control
initiatives; maintaining its cash requirements within its amended
revolving credit agreement; and ultimately, returning to
profitability.
Over the past two years, the Company has taken certain steps
and has instituted several initiatives intended to improve its
results from operations and cash flows, including the closing of
its Attleboro, Massachusetts and Cartago, Costa Rica jewelry
manufacturing facilities; entering into a sale-leaseback
transaction with respect to its South Norwalk, Connecticut
manufacturing facility; selling certain assets and
contemporaneously discontinuing the remaining operations
associated with its women's costume jewelry division; and,
instituting process improvements designed to eliminate waste and
improve operating efficiencies. The Company has already commenced
and/or completed several of the foregoing initiatives, including
the closure of the Attleboro, Massachusetts manufacturing
facility during the second quarter of 2000 that resulted in a
restructuring charge of $2,041,000 (see Note C of the
accompanying consolidated financial statements) and a charge
during the fourth quarter of 2000 of $2,371,000 (consisting of
$1,849,000 and $522,000 relating to the Attleboro and Costa Rica
facility closures, respectively) for inventory obsolescence
associated with raw material and work-in-process inventory; the
closure of the Costa Rica manufacturing facility during the
second quarter of 2001; the sale of certain assets associated
with and the discontinuation of the Company's women's costume
jewelry division resulting in a loss on disposition of
$5,957,000; the institution of improved processes within certain
purchasing and sourcing functions in an attempt to aggressively
reduce inventory levels in response to a decline in incoming
orders; and the realignment of production levels to more
accurately reflect projected shipping requirements.
As a result of these and other actions, inventory levels
were lower by $11,442,000 at December 31, 2001 compared with the
prior year. In addition, in April 2001, the Company received a
refund of $2,251,000 from the Internal Revenue Service and
anticipates receiving an additional refund of $3,032,000 in 2002
for federal income taxes paid in prior years. As discussed above,
during the second quarter, the Company completed the sale of its
South Norwalk, Connecticut manufacturing facility at a purchase
price of approximately $6,100,000 and contemporaneously entered
into a lease-back of that property for a period of ten years.
During the third quarter, the Company also completed the sale of
certain assets associated with its women's costume jewelry
division at a purchase price of approximately $4,600,000. The net
proceeds of both transactions were used to reduce the Company's
outstanding revolving credit balance.
At December 31, 2001, the Company was not in compliance with
the Bank's Tangible Net Worth ratio as required by the 1998
Revolving Credit Agreement, as amended. The Bank subsequently
waived those requirements as of and for the quarter ended
December 31, 2001. On May 7, 2002, the Company entered into an
Eighth Amendment of the 1998 Revolving Credit Agreement (the
"Eighth Amendment"). The Eighth Amendment modified the 1998
Revolving Credit Agreement by, among other things, extending the
termination date of the 1998 Revolving Credit Agreement to
June 25, 2003; reducing the maximum amount of revolving advances
to $23,000,000 from $25,000,000; and revising the minimum Tangible
Net Worth covenants for the quarters ending March 31, 2002, June 30,
2002, September 30, 2002, and December 31, 2002. The Eighth
Amendment also provides for a seasonal overadvance of $1,500,000
for the period July 1, 2002 through October 15, 2002 (the
"Seasonal Overadvance") and requires that John and Marshall Tulin
furnish to the Bank a guaranty, in an amount not to exceed $750,000,
to secure the repayment of the Seasonal Overadvance. (see Note 0)
Although no assurances can be given, the Company believes
that attaining adequate sales revenue, continuing the current
program of cost control initiatives, and maintaining cash
requirements within the amended revolving credit agreement terms,
will enable the Company to continue as a going concern.
Accordingly, the consolidated financial statements do not include
any adjustments related to the recoverability and classification
of recorded assets or liabilities or any other adjustments that
would be necessary should the Company be unable to operate as a
going concern in its present form.
B. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts
of Swank, Inc., its majority-owned Costa Rican subsidiary, and a
wholly-owned foreign sales corporation. All 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
accounting principles generally accepted in the United States
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, in-store customer
allowances, and customer returns. Net sales are recorded upon
shipment.
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.
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 and cooperative advertising are reflected in
selling and administrative expenses. The Company performs ongoing
credit evaluations of its customers and maintains allowances for
potential bad debt losses. The allowance for customer returns
results from the reversal of sales for estimated returns and
associated costs. Allowances for in-store markdowns and
cooperative advertising reflect the estimated costs of the
Company's share of certain promotions by its retail customers.
Allowances for accounts receivable are generally at their
seasonal highs on December 31. Reductions of allowances occur
principally in the first and second quarters when the balances
are adjusted to reflect actual charges as processed. Allowances
for accounts receivable are estimates made by management based on
historical experience, adjusted for current conditions, and may
differ from actual results. The provisions (recoveries) for bad
debts in 2001, 2000 and 1999 were $(226,000), $(60,000), and
$304,000, respectively.
Market Risk
The Company sells products primarily to major retailers
within the United States. The Company's three largest customers
accounted for approximately 37% of consolidated trade receivables
(gross of allowances) in 2001 and 42% in 2000.
The Company, in the normal course of business, is
theoretically exposed to interest rate change market risk with
respect to borrowings under its revolving credit line. The
seasonal nature of the Company's business typically requires it
to build inventories during the course of the year in
anticipation of heavy shipments to retailers for the upcoming
holiday season. The Company's revolving credit borrowings
generally peak during the third and fourth quarters. Therefore, a
sudden increase in interest rates (which under the Company's
amended revolving credit facility is the prime rate plus 1.5%)
may, especially during peak borrowing periods, have a negative
impact on short-term results. The Company is also theoretically
exposed to market risk with respect to changes in the global
price level of certain commodities used in the production of the
Company's products. The Company routinely makes substantial
purchases of leather hides during the year for use in the
manufacture of men's belts. The Company also purchases men's
personal leather items from a third-party supplier. An
unanticipated material increase in the market price of leather
could increase the cost of these products to the Company and
therefore have a negative effect on the Company's results. To
minimize this risk, the Company has developed certain
manufacturing techniques and processes designed to maximize
leather yields and incorporate lesser cost materials.
Inventories
Inventories are stated at the lower of cost (principally
average cost which approximates FIFO) or market. The Company's
inventory is somewhat fashion oriented and, as a result, is
subject to risk of rapid obsolescence. Management believes that
inventory has been adequately adjusted, where appropriate, and
that the Company has adequate channels to dispose of excess and
obsolete inventory.
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, equipment and
software. 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 remaining for
equipment, 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.
Periodically, management assesses, based on undiscounted
cash flows, if there has been a permanent impairment in the
carrying value of its long-lived assets and, if so, the amount of
any such impairment, by comparing anticipated discounted future
operating income resulting from intangible assets with the
carrying value of the related asset. In performing this
analysis, management considers such factors as current results,
trends and prospects, in addition to other economic factors. As a
result of such cash flow analysis, the Company wrote-down the
value of certain machinery and equipment at its Costa Rica
facility and recognized an expense of $502,000, which was
included in selling and administrative expenses for the year
ending December 31, 2000.
Fair Value of Financial Instruments
The carrying value of notes payable to banks approximates
fair value because these financial instruments have variable
interest rates.
Advertising Costs
The Company charges advertising costs to expense as they are
incurred including estimates for cooperative advertising costs.
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. 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.
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.
A valuation allowance is recorded to reflect the estimated
realization of the deferred tax asset.
Stock-Based Compensation
The Company measures the cost of stock-based compensation
associated with the stock option plans described in Note H 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. The Company discloses the
information required by Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation",
which includes 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 for purposes of this
disclosure.
Net Income (loss) per Share
Net income (loss) per common share or basic earnings 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. Net income (loss) per share
assuming full dilution includes the effects of options. All
share and per share amounts have been restated to reflect the
effects of the one-for-three reverse stock split that was
effective August 7, 2000 (See Note N).
Comprehensive Income
Reporting comprehensive income requires that certain items
recognized under generally accepted accounting standards as
separate components of stockholders' equity be reported as
comprehensive income in an annual financial statement that is
displayed with the same prominence as the other annual financial
statements. This statement also requires that an entity classify
items of other comprehensive income by their nature in an annual
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional capital in excess of par value in the equity section
of the balance sheet. Reportable other comprehensive income or
(loss) of $(173,000) in 2001 and $73,000 in 2000 arose from a
loss in connection with the closure of the Company's Costa Rica
manufacturing facility and the recording of the minimum pension
liability relating to the Company's defined benefit plan, and a
gain resulting from the effects of foreign currency translation,
respectively.
Segments and Related Information - Discontinued Operations
As further described in Note L below, the Company completed
the sale of certain assets pertaining to its women's costume
jewelry business during the third quarter and contemporaneously
discontinued its remaining women's jewelry operations.
Accordingly, the Company now has only one reportable segment, its
Men's Accessories business.
C. Restructuring Charges
Early in 2001, the Company intensified its efforts to reduce
costs throughout the organization to streamline operations and
reduce net cash requirements. As a consequence of that strategy,
the Company recorded a restructuring charge of $845,000 through
December 31, 2001 for employee severance and related payroll
costs associated with additional staff reductions primarily
within certain sales and administrative departments affecting
approximately 93 employees. Of the $845,000 charge, $372,000 was
reclassified to discontinued operations and $473,000 is included
in the results of continuing operations. No restructuring charges
were recorded during the fourth quarter.
The restructuring charges have been stated separately
in the Consolidated Statement of Operations. As of December 31,
2001, approximately $837,000 had been paid and $8,000 was
included in Other Liabilities in the Consolidated Balance Sheet.
The Company anticipates that the remaining liability will be paid
by the end of the first quarter in 2002. While the Company
currently does not anticipate any further material changes to the
restructuring charge, management continues to review the status
of its global sourcing and support operations for further
efficiencies and cost reduction opportunities.
On April 6, 2001, the Company ceased production operations
at Joyas y Cueros which had been engaged in the manufacture of
certain men's and women's jewelry items for the Company as a
majority-owned subsidiary since 1999. Management determined that
Joyas y Cueros could not be competitive with other jewelry
resources in light of recent changes in women's jewelry fashion
trends and improved quality and price competitiveness from Asian
vendors. In connection with the plant closure, Joyas y Cueros
recorded charges of approximately $1,218,000 during the fourth
quarter of 2000 to reflect a write-down in the value of its
manufacturing machinery and equipment and raw materials
inventory. Joyas y Cueros also recorded severance and associated
costs of approximately $264,000 in 2001 in connection with the
termination of its manufacturing operations. Restructuring
charges associated with Joyas y Cueros were included in Cost of
Sales on the Consolidated Statement of Operations for the periods
ended December 31, 2001 and 2000. As part of the restructuring
and plant closure, approximately 150 employees were terminated.
Management had completed the sale and liquidation of Joyas y
Cueros' assets by December 31, 2001.
On March 16, 2000, the Company announced a plan to cease
production operations at its jewelry manufacturing facility
located in Massachusetts and transfer its remaining domestic
jewelry production requirements to its majority-owned subsidiary,
Joyas y Cueros and certain third-party vendors. Manufacturing
operations at Attleboro ceased in May 2000 following the orderly
transition of merchandise requirements to other resources.
Management concluded early in 2000 that its Attleboro
manufacturing facility could no longer be competitive in light of
the increasing pressure to sustain gross margins at both the
wholesale and retail level and that maintaining a domestic large-
scale jewelry manufacturing operation was not economically
viable. In connection with the closure, the Company recorded a
restructuring charge of $2,041,000 against income from
operations for year ended December 31, 2000 to cover employee
severance and other payroll related costs. Additional
integration costs of $1,849,000 were incurred during the fourth
quarter of 2000 in connection with obsolescence charges for
certain jewelry raw material and work in process inventories and
are included in cost of goods sold. During 2001, the Company paid
the remaining $308,000 of outstanding restructuring liabilities
which had been included in Other Current liabilities at December
31, 2000. The restructuring charges recorded
in 2000 were based upon the estimates of the cost of the employee
terminations including outplacement fees, severance, and
curtailment losses related to certain post-retirement benefits.
D. Short-Term Borrowings
(Dollars in thousands) 2001 2000 1999
At December 31:
Total lines $25,000 $30,000 $30,000
Weighted average interest rate 6.25% 10.75% 8.50%
For the year:
Monthly average borrowing
outstanding 17,828 23,142 22,995
Maximum borrowing outstanding at
any month end 22,767 29,405 29,974
Monthly interest rate (weighted
average) 8.45% 9.94% 7.69%
Balance at December 31 12,105 21,104 16,762
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.
In July 1998, the Company signed the 1998 Revolving Credit
Agreement to replace the Company's prior $25,000,000 credit
facility. The 1998 Revolving Credit Agreement is collateralized
by substantially all of the Company's domestic accounts
receivable, inventory and machinery and equipment. In addition,
the 1998 Revolving Credit Agreement prohibits the Company from
payment of dividends, and imposes limits on capital expenditures
and additional indebtedness for borrowed money. The Company is
required to pay a commitment fee monthly of .375% per annum on
the difference between the average daily borrowings outstanding
and the maximum amount available. In 2001, the Company did not
request or obtain a temporary increase in the 1998 Revolving
Credit Agreement. In 2000 and 1999, the Company requested and
obtained a temporary increase to $33,000,000 for the period
October 18, 2000 through December 31, 2000 and for the period
August 1, 1999 through November 30, 1999, respectively, in
anticipation of peak seasonal working capital needs.
On April 27, 2001, the Company entered into a Fifth
Amendment of the 1998 Revolving Credit Agreement (the "Fifth
Amendment"). The Fifth Amendment modified the 1998 Revolving
Credit Agreement by, among other things, deleting the requirement
to maintain a Fixed Charge Coverage Ratio; revising the minimum
Net Tangible Worth covenants for March 31, 2001, June 30, 2001,
September 30, 2001 and December 31, 2001; reducing the permitted
seasonal collateral overadvance from $3,000,000 to $1,500,000
million; setting the interest rate on borrowings equal to the
Bank's prime rate plus 1.50% and eliminating the Eurodollar
borrowing option; and setting the termination date of the 1998
Revolving Credit Agreement at June 25, 2002. In addition, the
Bank established a reserve against the Company's women's jewelry
inventory, as permitted by the 1998 Revolving Credit Agreement,
as amended, that decreased availability by approximately
$3,000,000 pending the sale of those assets. As further described
in Note L below, the Company sold certain of its women's jewelry
inventory on July 23, 2001 as part of a plan to exit the women's
costume jewelry business and accordingly, the reserves pertaining
to this inventory have been eliminated.
At December 31, 2000, the Company was not in compliance with
the Bank's Fixed Charge Coverage and Tangible Net Worth ratios as
required by the 1998 Revolving Credit Agreement, as amended. The
Bank subsequently waived those requirements as of and for the
quarter ended December 31, 2000. The Company was not in
compliance with the Tangible Net Worth ratio for the quarter
ended March 31, 2001. On June 8, 2001, the Company entered into
a Sixth Amendment of the 1998 Revolving Credit Agreement (the
"Sixth Amendment"). The Sixth Amendment modified the 1998
Revolving Credit Agreement by, among other things, revising the
minimum Tangible Net Worth covenants for the quarters ending
March 31, 2001, June 30, 2001, September 30, 2001, and December
31, 2001.
On July 16, 2001, the Company entered into a Seventh
Amendment of the 1998 Credit Agreement (the "Seventh Amendment")
in connection with the sale of certain of its women's jewelry
assets to K&M. The Seventh Amendment, among other things, reduced
the maximum amount of revolving advances from $30,000,000 to
$25,000,000 at all times subsequent to the sale of the women's
jewelry assets and removed the applicable women's jewelry
accounts receivable and inventory from the collateral base. The
Seventh Amendment also provided for the bank's consent to the
sale.
At December 31, 2001, the Company was not in compliance with
the Bank's Tangible Net Worth ratio as required by the 1998
Revolving Credit Agreement, as amended. The Bank subsequently
waived those requirements as of and for the quarter ended
December 31, 2001. On May 7, 2002, the Company entered into an
Eighth Amendment of the 1998 Revolving Credit Agreement (the
"Eighth Amendment"). The Eighth Amendment modified the 1998
Revolving Credit Agreement by, among other things, extending the
termination date of the 1998 Revolving Credit Agreement to
June 25, 2003; reducing the maximum amount of revolving advances
to $23,000,000 from $25,000,000; and revising the minimum Tangible
Net Worth covenants for the quarters ending March 31, 2002, June 30,
2002, September 30, 2002, and December 31, 2002. The Eighth
Amendment also provides for a seasonal overadvance of $1,500,000
for the period July 1, 2002 through October 15, 2002 (the
"Seasonal Overadvance") and requires that John and Marshall Tulin
furnish to the Bank a guaranty, in an amount not to exceed $750,000,
to secure the repayment of the Seasonal Overadvance. (see Note 0)
E. Income Taxes
(Dollars in thousands)
Provision (benefit) for
income taxes: 2001 2000 1999
Currently payable
(recoverable):
Federal $(3,032) $ (2,257) $2,199
State - - 638
Foreign sales corporation - 6 18
(3,032) (2,251) 2,855
Deferred:
Federal 1,450 4,073 (1,630)
State - 1,379 (264)
1,450 5,452 (1,894)
Total provision (benefit) $(1,582) $3,201 $961
Deferred tax provision
(benefit): 2001 2000 1999
Accounts receivable reserves $159 $ 304 $(631)
Deferred compensation 542 581 (429)
Inventory capitalization 651 226 421
Postretirement benefits 20 (248) (77)
Inventory reserves 59 197 (397)
Workman's compensation (114) 38 76
Termination costs 148 115 (116)
Corporate owned life
insurance (1,097) (1,097) (1,098)
Gain on sale of assets (1,739) - -
Depreciation 75 (164) (101)
Federal NOL carryforwards (1,042) - -
State NOL carryforwards (687) - -
AMT credit carryforwards (175) - -
Other items. (106) 292 458
Valuation allowance 4,756 5,208 -
$1,450 $5,452 $(1,894)
Effective income tax rate: 2001 2000 1999
Statutory federal income tax
rate. (34.0)% (34.0)% 34.0%
State income taxes, net of
federal tax benefit (5.1) .4 5.1
Life insurance 1.8 3.9 (11.7)
Valuation allowance 27.5 56.0 -
Foreign tax rate
differentials .3 7.3 9.0
Resolution of federal tax
carryback - - (9.6)
Other items, net .3 .8 4.6
(9.2)% 34.4% 31.4%
Components of the net
deferred tax asset: 2001 2000 1999
Deferred tax assets:
Accounts receivable
reserves $1,577 $1,736 $2,040
Deferred compensation 1,708 2,250 2,831
Inventory capitalization 520 1,171 823
Postretirement benefits 1,096 1,115 867
Inventory reserves 336 395 592
Workman's compensation 133 19 57
Termination costs 40 188 303
Gain on sale of assets 1,830 - -
Federal NOL carryforwards 1,042 - -
State NOL carryforwards 1,052 365 -
AMT credit carryforwards 175 - -
Environmental costs 640 659 662
Other 143 19 308
Gross deferred asset 10,292 7,917 8,483
Deferred tax liabilities:
Corporate owned life
insurance - (1,097) (2,194)
Depreciation (328) (162) (326)
Valuation allowance (9,964) (5,208) -
Net deferred tax asset $ - $ 1,450 $5,963
At December 31, 2000, the Company recorded a valuation
allowance on its deferred tax asset in the amount of $5,208,000
to reduce the asset to its estimated net realizable value based
upon its projections of taxable income and loss for future tax
years in which the temporary differences that created the
deferred tax asset were anticipated to reverse. At December 31,
2000, the Company believed that it would be more likely than not
that it would receive $1,450,000 from the Internal Revenue
Service as a result of filing a carryback claim in 2002 of
federal income taxes paid in 1999.
At December 31, 2001, the Company recorded an additional
valuation allowance on its deferred tax asset of $4,756,000 to
increase the allowance to $9,964,000. At the end of 2001, the
Company's deferred tax asset was fully reserved reflecting the
full utilization of available carryback of federal income taxes
paid in 1999. The amount of the deferred tax asset considered
realizable could be adjusted in the future if estimates of
taxable income or loss for future tax years are revised based on
actual results. At December 31, 2001 the Company included on its
Consolidated Balance Sheet federal income taxes recoverable of
$3,032,000.
During 1999, the Company settled with the Internal Revenue
Service regarding a carryback claim filed by the Company, which
resulted in a refund of federal income taxes paid in prior years
in the amount of $293,000. The foreign rate differentials
resulted from startup expenses related to the Costa Rica joint
venture, which are not benefited for U.S. or foreign tax
purposes.
At December 31, 2001, the Company had federal and state net
operating loss carryforwards of approximately $3,063,000 and
$19,134,000, which expire in 2022 and 2006, respectively. The
alternative minimum tax credit carryforward of approximately
$175,000 at December 31, 2001, currently does not expire.
The Health Insurance and Accountability Act of 1996 (the
"Act") phased out the deduction of interest on policy loans on a
significant portion of the Company's corporate owned life
insurance and, therefore, substantially increased the after tax
cost of maintaining these policies. As a result, in 1996 the
Company announced its intention to surrender the affected
policies and recorded a deferred tax liability for the estimated
income taxes that will become due over a four year period, 1998
through 2001. The surrender of these policies was completed in
November 1998. See Note G.
F. Long-Term Obligations
Long-term obligations, excluding the current portion, at
December 31, were as follows:
(Dollars in thousands) 2001 2000
Benefits under 1987 Deferred
Compensation
Plan and Postretirement benefits (See
Note G) $3,877 $3,800
1993 Deferred Compensation Plan (See
Note G) 1,854 3,095
Environmental liabilities (See Note J) 1,588 1,588
Supplemental death benefits 104 86
Deferred gain on sale of assets (See
Note J) 4,360 -
Obligation on property sublease 770 -
Other 194 194
Long-term portion of capital leases - 58
$12,747 $8,821
The Company's lease agreements for certain computer hardware
and software have been classified as capital leases for financial
reporting purposes. Accumulated amortization of assets under
capital leases was $1,456,000 and $1,437,000 as of December 31,
2001 and 2000, respectively. The Company did not enter into any
new capitalized leases in 2001, 2000 or 1999.
Future minimum lease payments and the present value of the
minimum lease payments as of December 31, 2001 were:
(Dollars in thousands)
2002 $ 16
Imputed interest at 11.0% (1)
Present value of minimum lease payments $ 15
G. 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 $218,000, $970,000 and $451,000 in 2001, 2000 and
1999, respectively. At December 31, 2001 and 2000, the Plan held
a total of 3,338,474 and 3,395,586 shares, respectively, of the
Company's outstanding stock, of which 3,338,474 and 3,178,955
respectively, were allocated to participants. The Company from
time to time makes loans to the Plan at an interest rate equal to
the Prime lending rate plus 2 percentage points per annum to
provide the Plan with liquidity, primarily to enable the Plan to
make distributions of cash rather than shares to former
employees. There were no outstanding obligations due from the
Plan at December 31, 2001. At December 31, 2000, the outstanding
obligation due from the Plan was $286,000 and was classified in
the Consolidated Balance Sheet as deferred employee benefits, a
reduction in stockholders' equity.
In October 1999, the Plan's 401(k) Savings and Stock
Ownership Plan Committee authorized the repurchase by the Plan of
up to 600,000 shares of the Company's common stock. Purchases
will be made at the discretion of the Plan's trustees from time
to time in the open market and through privately negotiated
transactions, subject to general market and other conditions.
Repurchases are intended to be financed by the Plan with its own
funds and from any future cash contributions made by the Company
to the Plan. Shares acquired will be used to provide benefits to
employees under the terms of the Plan. As of December 31, 2000,
the Plan had repurchased 96,667 shares.
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 reconciliations of the
beginning and ending balances of the Company's postretirement
benefits and defined benefits under its 1987 Deferred
Compensation Plan described below:
(Dollars in thousands) Postretirement Defined
Benefits Benefits
Change in Benefit
Obligation 2001 2000 2001 2000
Benefit obligation at
beginning of year: $4,911 $4,763 $2,158 $2,356
Service cost 20 26 - -
Interest cost 344 355 126 166
Participants' Contributions 13 20 - -
Amendments (38) (125) - -
Special termination benefit
cost - 109 - -
Curtailment - (7) - -
Actuarial (gain) loss 177 460 25 72
Benefits paid (235) (690) (436) (436)
Benefit obligation at end
of year $5,192 $4,911 $1,873 $2,158
Change in Plan Assets
Plan assets at beginning of
year at fair value $ - $ - $ - $ -
Employer contributions 222 670 436 436
Participants' contributions 13 20 - -
Benefits paid (235) (690) (436) (436)
Plan assets at end of year
at fair value - - - -
Funded status $(5,192) $(4,911) $(1,873) $(2,158)
Unrecognized actuarial
(gain) loss 1,164 1,025 85 72
Unrecognized transition
obligation 1,288 1,446 - -
Unrecognized prior service
(credit) cost - - - -
Accrued benefit cost (1) $(2,740) $(2,440) $(1,788) $(2,086)
(1) Amounts totaling $736,000 and $726,000 have been included in
accrued employee compensation as of December 31, 2001 and 2000,
respectively. The remaining balance has been included in long-
term obligations as set forth in Note F.
The weighted-average discount rate used in determining the
accumulated benefit obligations was 6.95%, 7.25%, and 7.75% at
December 31, 2001, 2000, and 1999, respectively. For measurement
purposes, a 5.5% annual rate of increase in the per capita cost
of covered Medicare Part B health care benefits is assumed for
2002 and all years thereafter. A 13.0% annual rate of increase in
the per capita cost of AARP Medicare Supplemental Coverage is
assumed for 2002. This rate is assumed to decrease gradually to
5.5% in 2006 and remain at that level thereafter. An 8.8% annual
rate of increase in the per capita cost for Pre-65 Continuation
of Medical Coverage is assumed for 2002. This rate is assumed to
decrease gradually to 5.5% in 2005 and remain at that level
thereafter.
The weighted-average discount rate used in determining the
accumulated benefit obligations of the defined benefit plan was
6.00%, 6.50%, and 7.75% at December 31, 2001, 2000, and 1999,
respectively.
Net periodic postretirement and defined benefit cost for
2001, 2000 and 1999 included the following components:
Postretirement Defined
(Dollars in thousands) Benefits Benefits
2001 2000 1999 2001 2000 1999
Service cost $20 $26 $ 39 $- $- $ 40
Interest cost 344 355 338 126 166 141
Expected return on plan assets - - - - - -
Recognized actuarial (gain) 38 11 48 12 - (1)
loss
Amortization of transition
obligation 120 137 156 - - (20)
Amortization of prior service
(credit) cost - - - - - (18)
Net periodic benefit costs
included in selling and
administrative expenses $522 $529 $581 $138 $166 $142
(Gain) loss recognized due to
curtailment - 328 - - - (169)
Special termination benefit - 109 - - - -
cost
Total plan cost (income) $522 $966 $581 $138 $166 $(27)
The Company has multiple health care and life insurance
postretirement benefit programs which are generally available to
executives. The health care plans are contributory (except for
certain AARP and Medicare Part B coverage) and the life insurance
plans are noncontributory. A portion of the life insurance
benefits are fully insured through group life coverage and the
remaining life benefits are self-insured. 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 60 with ten years of service.
Proceeds from these contracts are expected to be adequate to fund
the Company's obligations. The cost of these contracts is
included in the annual postretirement cost shown above. On
December 31, 1998, the health plan was changed from an indemnity
coverage program to a preferred provider arrangement.
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A one-
percentage point decrease in assumed health care cost trend rates
would decrease the total of service and interest cost by $3 and
the postretirement benefit obligation by $57, respectively, while
a one-percentage point increase would increase the total of
service and interest cost by $3 and the postretirement benefit
obligation by $66.
In 1987, the Company adopted a deferred compensation plan
(the "1987 Plan") available to certain key executives for the
purpose of providing retirement benefits. Interest credited to
participants' accounts is paid at retirement in the form of a
monthly annuity over a period of ten years. All compensation that
was deferred under the 1987 Plan has been returned to
participants. The 1987 Plan was amended at the end of 1998 to
change the method of determining future interest credits on
participants' accounts. Life insurance contracts intended to fund
1987 Plan benefits through future death proceeds had been
purchased on the lives of the participants and on certain other
employees. However, as described in Note E, these contracts were
surrendered in November 1998 with a corresponding reduction in
gross cash surrender value and policy loans as set forth below.
In 1999, the Company determined that it would be
advantageous to place all remaining participants in the 1987 Plan
who were not currently receiving benefits into payout status,
effective January 1, 2000. Participants will receive benefit
payments over ten years resulting in the elimination of the
Company's liability under the 1987 Plan by the end of 2009. The
curtailment of the 1987 Plan resulted in an acceleration of the
unrecognized liability to participants, which was offset by a
reduction in plan liabilities associated with a change in certain
actuarial assumptions. The net effect of these adjustments was a
gain of $169,000 included in selling and administrative expenses
which was recorded in the fourth quarter of 1999.
In 1993, the Company established a deferred compensation
plan for certain key executives (the "1993 Plan") that provides
for payments of the amounts deferred and the earnings thereon
upon retirement, death or other termination of employment.
Amounts payable to participants in the 1993 Plan aggregated
$2,462,000 and $3,637,000 at December 31, 2001 and 2000,
respectively, of which $608,000 and $542,000 respectively, have
been classified in accrued employee compensation. The remaining
balances of $1,854,000 and $3,095,000 respectively, have been
included in long-term obligations (See Note F). Variable life
insurance contracts have been purchased on the lives of
participants and on certain other employees. These contracts are
held in a grantor trust and the contract values are expected to
be adequate to fund the benefit obligations under the 1993 Plan.
The net costs related to the 1993 deferred compensation plans are
included in selling and administrative expense and aggregated
approximately $70,000, $111,000, and $330,000 in 2001, 2000 and
1999, respectively.
The Company uses loans against the policy cash values to pay
part or all of annual life insurance premiums, except for the
variable life policies. The aggregate gross cash surrender value
of all policies was approximately $8,193,000 and $8,920,000 at
December 31, 2001 and 2000, respectively, which is included in
other assets, net of policy loans aggregating approximately
$2,320,000 and $2,348,000 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
$137,000, $185,000 and $285,000 in 2001, 2000 and 1999,
respectively, and is included in the net costs of the various
plans described above. The weighted average interest rate on
policy loans was 6.2%, 6.2%, and 6.3% at December 31, 2001, 2000
and 2001, respectively.
H. Stock Options
Under the Company's 1987 and 1981 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. These
options are generally exercisable during a period beginning one
year after the date of grant and continuing for an additional
nine years. No additional options may be granted under the 1987
and 1981 plans.
In 1994, the Company established a directors' stock option
plan pursuant to which options may be granted to non-employee
directors to purchase 50,000 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. No
options were granted in 2001 under this plan but 5,000 shares of
Common Stock were granted under this plan in 2000 and 1999. At
December 31, 2001, a total of 13,333 shares of Common Stock were
reserved for future grants under the directors' plan.
In April 1998, the Company's stockholders approved the
Swank, Inc. 1998 Equity Incentive Compensation Plan (the "1998
Plan") which replaced the Company's prior incentive stock plans,
all of which had expired by their terms. The 1998 Plan permits
the Company's Board to grant a maximum of 1,000,000 shares to key
employees through stock options, stock appreciation rights,
restricted stock units, performance awards and other stock-based
awards. Long-term performance awards were granted under the 1998
Plan in October 1998 to certain key employees. Awards are based
upon a formula which incorporates a minimum and maximum range of
cumulative earnings, determined before incentive compensation
pursuant to the awards and before income taxes, for the three
year period ending December 31, 2000. If earned, the awards would
have been payable partially in cash and partially in restricted
shares of the Company's common stock. Each award is entirely
denominated in dollars. The number of restricted shares to have
been issued under the 1998 Plan to participants is based on the
aggregate dollar amount of the equity portion of the awards
divided by the fair value of the Company's shares at the date of
distribution. Compensation expense of $350,000 was recorded as
of December 31, 1998 with a corresponding liability of $210,000
and an increase to additional paid-in-capital of $140,000 in
connection with awards under the 1998 Plan. In 1999, the Company
reversed this liability and, in 2000, decreased additional paid-
in-capital by $140,000 after determining that none of the
participants in the 1998 Plan would be entitled to receive any
amounts, as the cumulative measurements for the three-year period
were not met. The Company granted options for 725,000 shares
under the 1998 Plan in 2001. These shares vest immediately. No
awards were granted by the Board in either 2000 or 1999. At
December 31, 2001, a total of 275,000 shares of Common Stock were
reserved for future grants under the 1998 Plan.
The following table summarizes stock option activity for the
years 1999 through 2001:
Weighted
Average
Option Shares Exercise
Price
Outstanding at 310,167 $2.70
December 31, 1998
Exercised (5,000) 2.82
Forfeited (67,067) 2.13
Expired (3,333) 3.48
Granted 5,000 3.66
Outstanding at 239,767 $2.85
December 31, 1999
Forfeited (12,800) 3.03
Granted 5,000 2.44
Outstanding at
December 31, 2000 231,967 $2.83
Forfeited (26,667) 2.81
Expired (185,300) 2.81
Granted 725,000 .17
Outstanding at
December 31, 2000 745,000 $.25
For options granted in 2001, 2000 and 1999, the estimated
weighted average fair value, assuming no dividends, was
approximately $.13, $1.88, and $2.82, respectively, using a risk-
free rate of 6.5%, and an expected volatility of .99 in each
year, and expected lives of 5 years in each of 2001, 2000 and
1999, respectively. Pro forma net income (loss) and pro forma
net income (loss) per share for options granted using the fair
value method was $(15,804) and $(2.86) per share in 2001,
$(12,003) and $(2.17) per share in 2000, and $2,378 and $.43 per
share in 1999.
Options outstanding as of December 31, 2001 were as follows:
Exercise Shares Weighted Weighted Number Weighted
Price Outstanding Average Average Exercisable Average
Life Price Price
(Years)
$2.44 - 20,000 1.50 $3.07 20,000 $3.07
$3.84
$.17 725,000 4.83 .17 725,000 .17
Total 745,000 4.74 $.25 745,000 $.25
At December 31, 2001 and 2000 there were 745,000 and
231,967 exercisable options, respectively, and the weighted-
average exercise prices were $.25 and $2.83, respectively.
I. Net Income (Loss) Per Share
The following table sets forth the computation of net
income per share:
Year ended December 31,
(Dollars in thousands except 2000 1999
for shares and per share
amounts) 2001
Numerator:
Net income (loss) $(15,718) $(11,995) $2,387
Denominator:
Weighted average common
shares outstanding 5,522,490 5,522,513 5,522,305
Shares used in computing net
income per common share 5,522,490 5,522,513 5,522,305
Effect of dilutive options - - 38,981
Shares used in computing net
income per common share
assuming dilution 5,522,490 5,522,513 5,561,286
Net income (loss) per common
share basic and diluted:
Continuing operations $(1.10) $(1.99) $.01
Discontinued operations (1.75) (.18) .42
Net income (loss) per common
share $(2.85) $(2.17) $.43
Unallocated shares maintained in the Company's Employee
Stock Ownership Plan ("ESOP"), described in Note G, are reflected
as a reduction of outstanding shares for earnings per share
purposes until such shares are committed to be allocated. There
were no shares at December 31, 2001, 2000 and 1999, remaining in
the ESOP, which were not committed to be allocated.
J. Commitments and Contingencies
The Company leases certain of its warehousing, sales and
office facilities, automobiles and equipment under non-cancelable
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 $3,361,000, $3,431,000 and $3,354,000 in
2001, 2000 and 1999, respectively.
Future minimum lease payments under non-cancelable operating
leases as of December 31, 2001 are as follows:
(Dollars in thousands)
2002 $ 3,444
2003 3,120
2004 2,931
2005 2,952
2006 2,126
Thereafter 7,889
Total minimum payments $ 22,462
On May 2, 2001, the Company completed the sale and lease-
back of its manufacturing facility in South Norwalk, Connecticut.
The net proceeds to the Company of the sale of its manufacturing
facility were approximately $5,800,000 reflecting a sale price of
$6,100,000 less direct fees and expenses associated with the
sale. Under the terms of the contract of sale, the Company was
also required to fund an escrow payment of $685,400 for roof
repairs and general maintenance over the life of the lease. As
of December 31, 2001, the escrow fund balance was approximately
$47,000. The Company contemporaneously leased back the facility
from the purchaser for a period of 10 years. Under the terms of
the lease agreement, which the Company has classified as an
operating lease for financial reporting purposes, the Company
will pay monthly rent at a rate of approximately $57,000 that
increases over the term of the lease to approximately $74,000 a
month in year 10. The Company is also responsible for all taxes,
insurance, and routine maintenance for the manufacturing
facility. This transaction resulted in a deferred gain of
approximately $4,700,000 that was recorded on the Company's
Consolidated Balance Sheet at closing and is being amortized over
the lease term. The Company recorded amortization income of
$311,000 through December 31, 2001.
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 "Tommy Hilfiger",
"Geoffrey Beene", "Guess?", "Kenneth Cole", "Claiborne for Men"
and "Pierre Cardin" collectively may be considered material to
the Company's business. The Company is obligated to pay minimum
royalties under certain license agreements as follows: 2002 -
$3,722,000; 2003 - $2,790,000; 2004 - $1,693,000; and 2005 -
$350,000. Generally, the license agreements require the Company
to provide various forms of advertising and promotional support
determined as a percentage of annual net sales of licensed
merchandise and licensors generally retain audit rights for a
specified period. The Company also pays a percentage of net sales
to a consulting firm controlled by one of the Company's directors
in connection with a license agreement which that firm introduced
to the Company. Payments made by the Company in connection with
this agreement were approximately $66,000, $83,000 and $118,000
for the years ended December 31, 2001, 2000 and 1999,
respectively.
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.
The Company's share of costs for the RI/FS is being allocated on
an interim basis at 12.5177%. Due to the withdrawal of a PRP,
however, the Company expects that the respective shares of these
costs in the future will be reallocated among the remaining
members of the PRP Group. This Superfund Site is adjacent to a
municipal landfill that is in the process of being closed under
Massachusetts law. The Company believes that the issues regarding
the site are under discussion among state and federal agencies
due to the proximity of the site to the landfill and the
composition of waste at the site. At December 31, 2001 and 2000
the Company had accrued approximately $1,183,000 and $1,222,000
respectively in connection with this site based on the assumption
that the issues relating to the availability of federal funding
and the allocation of costs of remediation, among others, will
not be resolved for many years and that significant legal and
technical fees and expenses will be incurred prior to such
resolution.
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 for remediation of ground water at this site
is through natural attenuation which will be monitored over a
period of up to 24 years. Estimates of the costs of remediation
range from approximately $2,800,000 for natural attenuation to
approximately $7,800,000 for other remediation. The Company's
share is approximately 8% of approximately 75% of the costs. At
December 31, 2001 and 2000 the Company had accrued approximately
$438,000 and $446,000 respectively, in connection with this site
based on the results of tests conducted in 2000 and 1999.
Management believes that costs related to remediation of this
site will not have a material adverse effect on the Company's
operating results, financial condition or cash flows based on the
results of periodic tests conducted at the site. 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 Diaz, Arkansas. The Company has appropriately
responded but has received no further communications on this
matter. The Company has recorded no liability with respect to
this site as it has no basis on which to estimate potential
costs, if any.
The estimated liability for costs associated with
environmental sites is included in Long-term obligations in the
accompanying balance sheets (See Note F), exclusive of additional
currently payable amounts of approximately $33,000 and $80,000
included in Other liabilities in 2001 and 2000, respectively.
These amounts have not been discounted. Management believes that
the accompanying financial statements include adequate provision
for environmental exposures.
In the ordinary course of business, the Company is
contingently liable for performance under a letter of credit of
approximately $580,000 at December 31, 2001. The Company is
required to pay a fee quarterly equal to 1.75% per annum on the
outstanding letter of credit.
K. Promotional Expenses
Substantial expenditures for advertising and promotion are
considered necessary to maintain and enhance the Company's
business and, as described in Note J, certain license agreements
require specified levels of spending. These expenditures are
included in selling and administrative expenses in the year
incurred.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," as amended by SAB No. 101A and SAB No.
101B ("SAB 101"), which was required to be adopted no later than
the quarter ended December 31, 2000. SAB 101 clarifies the
Securities and Exchange Commission's views regarding recognition
of revenue. The Company adopted SAB 101 in the fourth quarter of
2000. The adoption of SAB 101 has resulted in the
reclassification of certain in-store customer allowances from
selling and administrative expenses to net sales. All amounts
shown in the Company's financial statements have been restated to
conform with the requirements of SAB 101. The effect of the SAB
101 reclassification on the Company's financial statements in
prior years was to reduce both net sales and selling and
administrative expense by $9,841,000
and $7,061,000 for 2000 and 1999 respectively. Expressed as a
percentage of net sales, excluding net sales of the Company's
factory outlets stores of $4,465,000, $5,879,000 and $6,072,000
in 2001, 2000 and 1999, respectively, the following table
summarizes the various promotional expenses incurred by the
Company which are included in selling and administrative
expenses:
(Dollars in thousands) 2001 2000 1999
Cooperative advertising $756 $898 $589
Displays 345 410 536
National advertising
and other 1,255 910 721
Total $2,356 $2,218 $1,846
L. Disclosures About Segments of an Enterprise and Related
Information - Discontinued Operations
On July 23, 2001, the Company sold certain of its women's
costume jewelry division's assets pursuant to an Agreement dated
July 10, 2001 (the "Agreement") between the Company and K&M.
Pursuant to the Agreement, the Company sold to K&M inventory,
accounts receivable and miscellaneous other assets relating to
the Company's Anne Klein, Anne Klein II, Guess?, and certain
private label women's costume jewelry businesses. The purchase
price paid by K&M to the Company at the closing of the
transactions contemplated by the Agreement was approximately
$4,600,000. K&M also assumed the Company's interest in its
respective license agreements with Anne Klein, a division of
Kasper A.S.L., Ltd., and Guess? Licensing Inc. and certain
specified liabilities. The cash portion of the purchase price is
subject to adjustment. These adjustments, together with other
adjustments affecting discontinued operations, resulted in net
income of $521,000 which was recorded in the fourth quarter of
2001. In connection with the sale to K&M, the Company and K&M
entered into an agreement whereby the Company provided certain
operational and administrative services to and on behalf of K&M
for a period of time extending from the closing date through
December 31, 2001 (the "Transition Agreement"). As provided by
the Transition Agreement, the Company was reimbursed by K&M in
2001 for its direct costs associated with performing the
transition services. In connection with the disposal of its
women's costume jewelry business, the Company recorded a non-
recurring charge of $5,957,000 net of income tax benefit of
$810,000 as of December 31, 2001. Based on the information
available to it earlier, the Company had originally estimated
this loss, net of tax benefits, to be approximately $6,000,000.
The components of the charge are set forth in the following
table:
(Dollars in thousands)
Description Amount
Difference between net book value of
assets sold and cash proceeds received $2,748
Accrual for certain remaining liabilities
associated with the Company's women's
jewelry business including lease
obligations and minimum royalties for
licenses not transferred to K&M 1,981
Additional reserves for women's jewelry
assets not sold to K&M 1,544
Legal, professional, and other fees and
expenses associated with the disposition
of the women's jewelry business 49
Loss on disposition before tax benefit 6,767
Income tax (benefit) (810)
Total loss on disposition $5,957
The disposition of the women's jewelry business represents
the disposal of a business segment under Accounting Principles
Board ("APB") Opinion No. 30. Accordingly, the results of this
operation have been classified as discontinued, and prior periods
have been adjusted with certain fixed overhead charges
reallocated to the remaining Men's Accessories business segment.
Proceeds from the sale of assets to K&M were used to repay
borrowings outstanding under the 1998 Credit Agreement.
M. Quarterly Financial Data (unaudited)
The Company believes that the results of operations are more
meaningful on a seasonal basis (approximately January-June and
July-December) than on a quarterly basis. The timing of shipments
can be affected by the availability of materials, retail sales
and fashion trends. These factors may shift volume and related
earnings between quarters within a season differently in one
year than in another.
(Dollars in thousands)
2001 First Second Third Fourth
Net sales $19,981 $20,277 $24,036 $24,274
Gross profit 6,073 6,473 7,284 6,851
(Loss) from continuing
operations (2,194) (1,893) (291) (1,666)
Income (Loss) from
discontinued operations (1,568) (7,863) (1,269) 1,026
Net (loss) $(3,762) $(9,756) $(1,560) $(640)
Per common share basic
and diluted:
Continued operations $(.40) $(.34) $(.05) $(.30)
Discontinued operations (.28) (1.43) (.23) .18
Net (loss) $(.68) $(1.77) $(.28) $(.12)
2000 First Second Third Fourth
Net sales $23,201 $23,224 $26,403 $28,820
Gross profit 6,462 7,397 8,479 10,057
(Loss) from continuing
operations (1,862) (1,255) (644) (7,222)
Income (Loss) from
discontinued operations 263 (276) (827) (172)
Net (loss) $(1,599) $(1,531) $(1,471) $(7,394)
Per common share basic
and diluted:
Continued operations $(.34) $(.23) $(.12) $(1.31)
Discontinued operations .05 (.05) (.15) (.03)
Net (loss) $(.29) $(.28) $(.27) $(1.34)
N. Equity and Stockholder Rights Plan
On August 4, 2000, the Company's stockholders approved a
proposal to amend the Company's Restated Certificate of
Incorporation, as amended to date, to effect a one-for-three
reverse stock split of the Company's issued shares of common
stock, $.10 par value per share ("Common Stock"). The reverse
stock split was effective at the opening of business August 7,
2000. As a result, each three shares of Common Stock issued and
outstanding and held in the treasury of the Company immediately
prior to the effectiveness of the reverse stock split were
combined into one share of Common Stock. No fractional shares of
Common Stock were issued in connection with the reverse stock
split. Instead, each holder of shares received a cash payment in
lieu of such fractional shares at a price equal to the fraction
that such stockholder would have otherwise be entitled to receive
multiplied by $1.50. There is no change in the par value of the
Common Stock. All share and per share amounts have been restated
to reflect the effects of the reverse stock split.
On October 26, 1999 the Company's Board of Directors adopted a
new Stockholder Rights Plan (the "Rights Plan") to succeed a
similar plan which originally was adopted in 1988 and had expired
by its terms in 1998. Under the Rights Plan, the Company
declared a dividend of one Right to purchase one one-hundredth of
a share of newly created Series D Junior Participating Preferred
Stock at an initial exercise price of $5.50 (the "Purchase
Price"). One Right was distributed for each share of the
Company's common stock outstanding to shareholders of record on
November 12, 1999.
Initially, the Rights will be attached to and trade with the
Company's outstanding common stock. A Distribution Date will
occur and the Rights will separate from the common stock and be
distributed to shareholders upon the earlier of (i) 10 days
following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has
acquired or obtained the right to acquire, beneficial ownership
of 15% or more of the shares of common stock then outstanding or
(ii) 10 business days following the commencement of a tender
offer or exchange offer that would result in a person or group
beneficially owning 15% or more of such outstanding shares of
common stock (unless such tender offer or exchange offer is an
offer for all outstanding shares of common stock which a majority
of the unaffiliated directors who are not officers of the Company
determine to be at a price which is fair to all stockholders and
otherwise in the best interests of the Company and its
stockholders).
In the event that an Acquiring Person becomes the beneficial
owner of 15% or more of the then outstanding shares of the
Company's common stock (except pursuant to a tender offer or
exchange offer for all outstanding shares of common stock which a
majority of the unaffiliated directors who are not officers of
the Company determine to be at a price which is fair to all
stockholders and otherwise in the best interests of the Company
and its stockholders (a "Qualifying Offer")), each holder of a
Right will thereafter have the right to receive, upon payment of
the Purchase Price, common stock (or in certain circumstances,
cash, property, or other securities of the Company) having a
value equal to two times the Purchase Price of the Right. In
addition, in the event that at any time after the Stock
Acquisition Date (i) the Company is involved in a merger or other
business combination transaction in which the Company is not the
surviving corporation or in which it is the surviving corporation
but its Common Stock is changed or exchanged (other than a merger
consummated pursuant to a Qualifying Offer), or (ii) more than
50% of the Company's assets or earning power is sold or
transferred, each holder of a Right shall, after the expiration
of the redemption period referred to below, have the right to
receive, upon payment of the Purchase Price, common stock of the
acquiring company having a value equal to two times the Purchase
Price.
The Rights are not exercisable until the Distribution Date and,
under certain circumstances, are redeemable by the Company at a
price of $.01 per right. The Company at its option may also
exchange the Rights for shares of common stock at an exchange
ratio of one share of common stock per Right. The Rights will
expire at the close of business on November 11, 2009, unless
redeemed or exchanged earlier by the Company pursuant to the
terms of the Rights Plan.
O. Subsequent Events
At December 31, 2001, the Company was not in compliance with
the Bank's Tangible Net Worth ratio as required by the 1998
Revolving Credit Agreement, as amended. The Bank subsequently
waived those requirements as of and for the quarter ended
December 31, 2001. On May 7, 2002, the Company entered into an
Eighth Amendment of the 1998 Revolving Credit Agreement (the
"Eighth Amendment"). The Eighth Amendment modified the 1998
Revolving Credit Agreement by, among other things, extending the
termination date of the 1998 Revolving Credit Agreement to
June 25, 2003; reducing the maximum amount of revolving advances
to $23,000,000 from $25,000,000; and revising the minimum Tangible
Net Worth covenants for the quarters ending March 31, 2002, June 30,
2002, September 30, 2002, and December 31, 2002. The Eighth
Amendment also provides for a seasonal overadvance of $1,500,000
for the period July 1, 2002 through October 15, 2002 (the
"Seasonal Overadvance") and requires that John and Marshall Tulin
furnish to the Bank a guaranty, in an amount not to exceed $750,000,
to secure the repayment of the Seasonal Overadvance. (see Note 0)
Report of Independent Accountants
To Board of Directors and Shareholders
of Swank, Inc.:
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a)(1) on page 55, present fairly, in
all material respects, the financial position of Swank, Inc. and its
subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedules listed in the index
appearing under Item 14 (a)(2) on page 55, present fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements and financial
statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue to operate as a going concern. As
discussed in Note A to the financial statements, the Company has
experienced operating losses and negative cash flows from operating
activities for the year ended December 31, 2001 that raise
substantial doubt about its ability to continue to operate as a going
concern. Management's plans in regard to these matters are also
described in Note A. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 13, 2002 except for Note O for which the date is May 7, 2002
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 with regard
to executive officers of the Company (including executive
officers who are also directors of the Company) appears following
Part I in this Annual Report on Form 10-K under the caption
"Executive Officers of the Registrant." The Company's non-
employee directors are as follows:
John J. Macht, who is 65 years old, has been President
of The Macht Group, a marketing and retail consulting firm, since
July 1992. From April 1991 until July 1992, Mr. Macht served as
Senior Vice President of Jordan Marsh Department Stores, a
division of Federated Department Stores. Mr. Macht became a
director of the Company in 1995.
Raymond Vise, who is 80 years old, served as Senior
Vice President of the Company for more than five years prior to
his retirement in 1987. Mr. Vise became a director in 1963.
Item 11. Executive Compensation.
Summary Compensation Table.
The following table sets forth certain summary information
for each of the Company's fiscal years ended December 31, 2001,
2000 and 1999 concerning the compensation of the Company's chief
executive officer and each of its four other most highly
compensated executive officers (the "Named Officers"):
ANNUAL COMPENSATION LONG TERM
COMPENSATION
AWARDS
OTHER
ANNUAL
NAME AND SATION SECURITIES
PRINCIPAL COMPEN- UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS SATION OPTIONS/ COMPENSATION
(5) SARs (#) (8)
Marshall Tulin, 2001 $289,167 $ --- 75,000 $476
Chairman of
the Board (1) 2000 360,000 --- 5,411
1999 360,000 10,000 210
John Tulin, 2001 $410,000 $ --- $67,200 (6) 150,000 $476
President,
Chief 2000 410,000 --- --- 5,412
Executive
Officer (2) 1999 410,000 60,000 --- 292
Eric P. Luft , 2001 $180,000 $190,476 75,000 $2,516
Senior Vice
President and 2000 180,000 213,394 5,412
Director (3)
1999 142,500 245,311 292
James Tulin, 2001 $285,000 $ --- $43,503 (7) 75,000 $476
Senior Vice
President (4) 2000 274,583 --- 39,981 (7) 5,412
1999 260,000 50,000 38,840 (7) 292
W. Barry 2001 $225,000 $ --- 75,000 $2,516
Heuser,
Senior Vice 2000 225,000 --- 5,412
President -
Belt Division 1999 225,000 15,000 292
(1) Mr. Tulin is a party to an employment agreement with the
Company which is described below under the caption "Employment
Contracts and Severance Agreements".
(2) Mr. Tulin is a party to an employment agreement with the
Company which is described below under the caption "Employment
Contracts and Severance Agreements".
(3) Mr. Luft's bonus amounts include sales commissions of
$190,476, $213,315 and $217,811 for the years 2001, 2000, and
1999, respectively. Mr. Luft is a party to an employment
agreement with the Company which is described below under the
caption "Employment Contracts and Severance Agreements."
(4) Mr. Tulin is a party to an employment agreement with the
Company which is described below under the caption "Employment
Contracts and Severance Agreements".
(5) Except as set forth for James Tulin and John Tulin,
perquisites and other personal benefits during 2001, 2000, and
1999 did not exceed the lesser of $50,000 or 10% of reported
annual salary and bonus for any of the Named Officers.
(6) This amount includes a special allowance of $67,200 in 2001.
(7) These amounts include automobile lease payments of $21,120
in 2001, $19,402 in 2000 and $18,778 in 1999 and a travel
allowance of $10,800 in each of 2001, 2000 and 1999.
(8) The amounts set forth for 2001, 2000 and 1999 represent
allocations under certain benefit plans of the Company as
follows:
RETIREMENT DEFERRED TOTAL
PLAN COMPENSATION
ACCOUNTS PLAN
2001
Marshall Tulin $ 476 --- $ 476
John Tulin 5476 --- 5476
Eric P. Luft 2,516 --- 2,516
James Tulin 476 --- 476
W. Barry Heuser 2,516 --- 2,516
2000
Marshall Tulin $5,410 --- $5,410
John Tulin 5,412 --- 5,412
Eric P. Luft 5,412 --- 5,412
James Tulin 5,412 --- 5,412
W. Barry Heuser 5,412 --- 5,412
1999
Marshall Tulin $ 210 $ --- $ 210
John Tulin 292 1,920 2,212
Eric P. Luft 292 1,920 2,212
James Tulin 292 --- 292
W. Barry Heuser 271 1,848 2,119
Option Grants In Last Fiscal Year
The following table sets forth certain information
concerning the grant of stock options to the Named Officers
during the Company's fiscal year ended December 31, 2001
Individual Grants
Percent
of
Total
Options
Number of Granted Potential Realizable
Securities to Value at Asssumed
Underlying Employees Annual Ratesof Stock
Options in Exercise Price Appreciation For
Granted Fiscal Price Expiration Option Term
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
John Tulin 150,000 20% $.17 11/05/06 $5,548.80 $6,979.35
Eric P. Luft 75,000 10% $.17 11/05/06 $2,774.40 $3,489.68
Marshall Tulin 75,000 10% $.17 11/05/06 $2,774.40 $3,489.68
James Tulin 75,000 10% $.17 11/05/06 $2,774.40 $3,489.68
W. Barry Heuser 75,000 10% $.17 11/05/06 $2,774.40 $3,489.68
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year End Value Table.
During the Company's fiscal year ended December 31, 2001, no
stock options were exercised by any of the Named Officers. The
following table sets forth information with respect to the number
and value of unexercised options held by the Named Officers as of
the end of fiscal 2001. The closing price of a share of Common
Stock of the Company on December 31, 2001 was $.15.
2001 FISCAL YEAR END OPTION VALUES
Number of Securities Value of
Underlying Unexercised
Unexercised Options In-the-Money
at FY-End (#) Options at FY-End
Exercisable/ ($) Exercisable/
Name Unexercisable Unexerciseable (1)
Marshall Tulin 75,000 / 0 $0 / 0
John Tulin 150,000 / 0 $0 / 0
Eric P. Luft 75,000 / 0 $0 / 0
James Tulin 75,000 / 0 $0 / 0
W. Barry Heuser 75,000 / 0 $0 / 0
_______________
(1) Aggregate market value of the shares of Common Stock
covered by the options at fiscal year end less the
exercise price of such options.
Compensation of Directors
Each director who is not a full-time employee of or
consultant to the Company receives an annual director's fee of
$2,000 per meeting of the Board and $2,000 per Board committee
meetings attended by him. In addition, pursuant to the terms of
the 1994 Plan, each director who is not a full-time employee of
the Company or any subsidiary of the Company and who is in office
immediately following each annual meeting of stockholders at
which directors are elected, will, as of the date such meeting is
held, automatically be granted an option to purchase 5,000 shares
of Common Stock. No options were granted under the 1994 Plan
during fiscal 2001.
Employment Contracts and Severance Agreements
The Company has entered into an employment agreement with
Marshall Tulin which provides for automatic renewal for
successive one-year periods unless at least 10 days prior to its
June 30 anniversary either the Company or Mr. Tulin decides not
to further extend the term. Pursuant to such agreement, Mr.
Tulin is employed as Chairman of the Board at a base salary of
$250,000. The Company has also entered into an employment
agreement with John Tulin, which terminates on December 31, 2004.
Pursuant to such agreement, Mr. Tulin is employed as Chief
Executive Officer and receives a base salary of $400,000 per year
(commencing January 1, 2002), plus such additional compensation,
if any, as the Board of Directors shall determine. The Company
has also entered into an employment agreement with James Tulin,
which terminates on December 31, 2004. Pursuant to such
agreement, Mr. Tulin is employed as Senior Vice President and
receives a base salary of $285,000 per year, plus such additional
compensation, if any, as the Board of Directors shall determine.
In April 2000, the Company entered into an employment
agreement with Eric P. Luft, pursuant to which Mr. Luft is
employed as Senior Vice President - Men's Division until March
31, 2005. Pursuant to such agreement, Mr. Luft is to receive a
base salary of $180,000 per year, plus annual commission
compensation in an amount equal to the greater of (i) $160,000 or
(ii) the sum of (A) .0023 times (1) net sales (as such term is
defined in accordance with the commission arrangement between Mr.
Luft and the Company for fiscal 1999) of the men's division of
the Company (other than sales to Target Stores) and (2) net sales
of the Company of small leather goods only to Target Stores, plus
(B) .003 times net sales of the men's special markets division of
the Company. Furthermore, in the event the Company terminates
Mr. Luft's employment without cause, the Company has agreed to
pay to Mr. Luft, from the date of his termination until March 31,
2006, $340,000 per year (plus an amount equal to any increase in
his base salary per year over and above $180,000), plus any
accrued but unpaid commissions. Mr. Luft is also a party to a
termination agreement with the Company (as discussed below).
However, pursuant to his employment agreement, in the event Mr.
Luft's employment with the Company is terminated and he is
entitled to receive amounts under such termination agreement, Mr.
Luft must choose to receive either (i) the amounts he may be
entitled to under his employment agreement, or (ii) the amounts
he may be entitled to under his termination agreement, but not
both amounts.
The Company has entered into termination agreements with
Messrs. Marshall Tulin, John Tulin, James Tulin, Eric P. Luft
and W. Barry Heuser. Each termination agreement had an original
expiration date of December 31, 2001 with an automatic annual
extension commencing on December 31, 2001 and on each December 31
thereafter unless the Company shall have given 30 days written
notice prior to the then current expiration date that there shall
be no extension. In the event of a change in control of the
Company (as defined in such agreements) during the term of such
agreements, followed by a significant change in the duties,
powers or conditions of employment of any such officer, the
officer may, within 2 years thereafter terminate his employment
and receive a lump sum payment equal to 2.99 times the officer's
"base amount" (as defined in Section 280G (b)(3) of the Internal
Revenue Code of 1986, as amended).
Terminated Pension Plans
In 1983, the Company terminated its pension plans covering
salaried employees and salesmen and purchased annuities from the
assets of those plans to provide for the payment (commencing at
age 62) of accrued benefits of those employees who were not
entitled to or did not elect to receive lump sum payments. The
accrued annual benefits for Messrs. John Tulin and James Tulin
are $13,116 and $10,407, respectively.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee of the Board of
Directors is charged with recommending the annual compensation,
including bonuses, for the executive officers of the Company who
are also directors and for the Company's Chief Financial Officer.
During 2001, the Executive Compensation Committee consisted of
Mark Abramowitz and Raymond Vise. The Stock Option Committee of
the Board of Directors administers the Company's compensation
plans under which stock and stock-based compensation have been
awarded other than the 1998 Plan, which is administered by the
entire Board of Directors. During 2001, the Stock Option
Committee consisted of John Macht and Raymond Vise.
During 2001, Ronald Vise, the son of Raymond Vise was
employed by the Company as a commissioned salesman. He received
compensation of $121,049 for services he rendered to the Company.
In addition, the Company and The Macht Group, a marketing and
retail consulting firm of which John J. Macht serves as
President, are parties to an agreement pursuant to which The
Macht Group is entitled to receive compensation based on net
sales of products under license agreements entered into between
the Company and licensors introduced to the Company by The Macht
Group. Aggregate compensation earned by The Macht Group under
this arrangement was $65,958 during 2001.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Ownership of Voting Securities
The following table sets forth information as of March 31,
2002 with respect to each person (including any "group" of
persons as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ("the Exchange Act"))
who is known to the Company to be the beneficial owner of more
than 5% of the Common Stock:
Title of Class Name and Address Amount and Nature Percent
of Beneficial of Beneficial of
Owner Ownership (1) Class
Common Stock The New Swank, 3,312,512(2)(3) 60.0%
Inc. Retirement
Plan
90 Park Avenue
New York, NY
10016
Common Stock Marshall Tulin 1,942,873 (4)(5) 34.7%
90 Park Avenue
New York, NY
10016
Common Stock John Tulin 1,881,809 (4)(6) 33.2%
90 Park Avenue
New York, NY
10016
Common Stock Raymond Vise 1,657,487 (4)(7) 30.0%
8 El Paseo
Irvine, CA 92715
_____________________
(1) Reflects adjustment for one-for-three reverse stock split
in August 2000.
(2) This amount includes (a) 1,663,827 shares of Common Stock
allocated to participants' accounts in The New Swank, Inc.
Retirement Plan (the "Retirement Plan") and as to which such
participants may direct the trustees of the Retirement Plan as
to voting on all matters, and (b) an additional 5,870 of such
shares allocated to accounts of former employees, subject to
forfeiture, and able to be voted by the trustees on all matters
on which stockholders may vote.
(3) This amount also includes 1,271,908 shares of Common Stock
allocated to participants' accounts in the Retirement Plan as
to which participants may direct the trustees as to voting only
on certain significant corporate events and as to which the
trustees may vote on all other matters in their discretion and
62,348 unallocated shares which the trustees may vote in their
discretion. Shares allocated to such accounts as to which no
voting instructions are received are required to be voted in
the same proportion as shares allocated to accounts as to which
voting instructions are received. This amount also includes
308,559 shares held in the accounts under the Retirement Plan,
as to which participants may direct the trustees as to voting
on all matters and may be disposed of in the discretion of the
trustees.
(4) The trustees of the Retirement Plan (other than with
respect to 401(k) accounts) are Marshall Tulin, Chairman of the
Board and a director of the Company, John A. Tulin, President
and a director of the Company and Raymond Vise, a director of
the Company. This amount includes (a) 5,870 shares of Common
Stock allocated to the accounts of former employees, subject to
forfeiture, but voted by the trustees (see footnote 2 above),
(b) 1,271,908 shares held in accounts as to which the trustees
have sole voting power as to certain matters (see footnote 3
above), (c) 62,348 unallocated shares which the trustees may
vote in their discretion and (d) 308,559 shares held in
accounts under the Retirement Plan which may be disposed of in
the discretion of the trustees (see footnote 3 above).
(5) This amount includes 114,340 shares owned by Mr. Tulin's
wife. Mr. Tulin disclaims beneficial ownership of these
shares. This amount also includes 75,000 shares which Mr.
Tulin has the right to acquire within 60 days through the
exercise of stock options granted under the Company's 1998
Equity Incentive Compensation Plan (the "1998 Plan") and 1,372
shares allocated to his accounts under the Retirement Plan.
(6) This amount includes 1,060 shares owned by Mr. Tulin's wife
and 2,333 shares held by Mr. Tulin's daughter. Mr. Tulin
disclaims beneficial ownership of these shares. This amount
also includes 150,000 shares which Mr. Tulin has the right to
acquire within 60 days through the exercise of stock options
granted under the 1998 Plan and 25,978 shares allocated to his
accounts under the Retirement Plan.
(7) This amount includes 6,667 shares which Mr. Vise has the
right to acquire within 60 days through the exercise of stock
options granted under the Company's 1994 Non-Employee Director
Stock Option Plan (the "1994 Plan").
Security Ownership of Management
The following table sets forth information at March 31, 2002
as to the ownership of shares of the Company's Common Stock, its
only outstanding class of equity securities, with respect to (a)
each director of the Company, (b) each of the Named Officers, and
(c) all directors and executive officers of the Company as a
group (7 persons). Unless otherwise indicated, each person named
below and each person in the group named below has sole voting
and dispositive power with respect to the shares of Common Stock
indicated as beneficially owned by such person or such group.
Beneficial Owner Amount and Nature Percent of
of Class
Beneficial
Ownership (1)
John J. Macht 6,667 (2) *
James Tulin 100,075 (3) *
John Tulin 1,881,809 (4) 33.2%
Marshall Tulin 1,942,873 (5) 34.7%
Raymond Vise 1,657,487 (6) 30.0%
Eric P. Luft 94,370 (7) *
W. Barry Heuser 82,605 (8) *
All directors and 2,786,866 (9) 44.8%
officers as a group (7
persons)
____________________________
* Less than one (1%) percent.
(1) Reflects adjustment for one-for-three reverse stock split
in August 2000.
(2) Includes 6,667 shares which Mr. Macht has the right to
acquire within 60 days through the exercise of stock options
under the 1994 Plan.
(3) Includes 75,000 shares which Mr. Tulin has the right to
acquire within 60 days through the exercise of stock options
granted under the 1998 Plan, an aggregate of 142 shares held by
his children and an aggregate of 24,933 shares of Common Stock
allocated to his accounts under the Retirement Plan.
(4) Includes the shares referred to in footnotes 4 and 6 to
the first table above under the caption "Ownership of Voting
Securities."
(5) Includes the shares referred to in footnotes 4 and 5 to
the first table above under the caption "Ownership of Voting
Securities."
(6) Includes the shares referred to in footnote 4 and 7 to
the first table above under the caption "Ownership of Voting
Securities."
(7) Includes 75,000 shares which Mr. Luft has the right to
acquire within 60 days through the exercise of stock options
granted under the 1998 Plan and an aggregate of 19,370 shares
of Common Stock allocated to his accounts under the Retirement
Plan.
(8) Includes 75,000 shares which Mr. Heuser has the
right to acquire within 60 days through the exercise of stock
options granted under the 1998 Plan and an aggregate of 7,605
shares of Common Stock allocated to his accounts under the
Retirement Plan.
(9) Reference is made to footnotes (1) through (8) above. This
amount also includes 695,000 shares of Common Stock which
directors and executive officers as a group have the right to
acquire within 60 days through the exercise of stock options
granted under the 1994 Plan.
Item 13. Certain Relationships and Related Transactions.
A portion of the information called for by this Item 13
appears in Item 11 of this Annual Report under the caption
"Compensation Committee Interlocks and Insider Participation."
Robert Tulin (who is the brother of Marshall Tulin and uncle
of John Tulin) was employed by the Company during 2001. Robert
Tulin is the director of advertising and is responsible for
coordinating the production of the Company's merchandise
catalogs. Aggregate compensation paid to Robert Tulin by the
Company for services rendered during 2001 amounted to $62,500.
Christine Tulin (who is the daughter of John Tulin and
granddaughter of Marshall Tulin) was employed by the Company
during 2001 as merchandise manager - men's jewelry. Ms. Tulin is
responsible for the development of merchandise design and
packaging concepts for the Company's various licensed and private
label men's jewelry collections. Aggregate compensation paid to
Christine Tulin by the Company for services rendered during 2001
amounted to $68,000.
Kathryn Figueroa (who is the sister of John Tulin and
daughter of Marshall Tulin) was employed by the Company during
2001 as southeast regional factory outlet manager. Ms. Figueroa
is responsible for the operation of the Company's factory store
operations covering the southeastern United States. Aggregate
compensation paid to Kathryn Figueroa by the Company for services
rendered during 2001 amounted to $62,500.
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 following consolidated financial statements
of the Company are included in Item 8:
Consolidated Balance Sheets - As of
December 31, 2001 and 2000.
Consolidated Statement of Operations - Years
ended December 31, 2001 and 2000.
Consolidated Statement of Changes in
Shareholder's Equity - Years ended December
31, 2001 and 2000.
Consolidated Statement of Cash Flows - Years
ended December 31, 2001 and 2000.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules filed as part of
this Report:
The following consolidated financial statement
schedule and the report of independent
accountants thereon are submitted in response to
Item 14(d) of this Annual Report.
Report of Independent Accountants on Financial
Statement Schedule
Financial Statement Schedule for the years ended
December 31, 2001, 2000 and 1999.
Schedule II. Valuation and Qualifying Accounts
(b) Reports on Form 8-K
No current report on Form 8-K was filed during the
fiscal quarter ended December 31, 2001.
(c) Exhibits
Exhibit Description
3.01 Restated Certificate of Incorporation of the
Company dated May 1, 1987, as amended to date. (Exhibit 3.01 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 1-5354, is incorporated herein
by reference.)
3.02 By-laws of the Company, as amended to date.*
4.01 Revolving Credit and Security Agreement dated
as of July 27, 1998 between the Company and PNC Bank, National
Association, as Lender and as Agent ("PNC"). (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998, File No. 1-5354, is incorporated herein by
reference.)
4.01.1 First Amendment to Revolving Credit and
Security Agreement dated as of July 12, 1999 between the Company
and PNC Bank, National Association, as lender and Agent.
(Exhibit 4.0 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1999, File No. 1-5354, is
incorporated herein by reference.)
4.01.2 Second Amendment to Revolving Credit and
Security Agreement dated as of November 1, 1999 between the
Company and PNC Bank, National Association, as lender and Agent.
(Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1999, File No. 1-5354, is
incorporated herein by reference.)
4.01.3 Third Amendment to Revolving Credit and
Security Agreement dated as of December 31, 1999 between the
Company and PNC Bank, National Association, as lender and Agent.
(Exhibit 4.01.3 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, File No. 001-05354, is
incorporated herein by reference.)
4.01.4 Waiver dated March 7, 2000 to Revolving
Credit and Security Agreement dated as of July 27, 1998 between
the Company and PNC Bank, National Association, as lender and
Agent. (Exhibit 4.01.4 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1999, File No. 001-
05354, is incorporated herein by reference.)
4.01.5 Fourth Amendment to Revolving Credit and
Security Agreement dated as of October 18, 2000 between the
Company and PNC Bank, National Association, as lender and Agent.
(Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2000, File No.1-5354, is
incorporated herein by reference.)
4.01.6 Fifth Amendment to Revolving Credit and
Security Agreement dated as of April 27, 2001 between the Company
and PNC Bank, National Association, as lender and Agent (Exhibit
4.01.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001, File No. 1-5354, is incorporated
herein by reference.)
4.01.7 Sixth Amendment to Revolving Credit and
Security Agreement dated as of June 8, 2001 between the Company
and PNC Bank, National Association, as lender and Agent (Exhibit
4.01.7 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, File No. 1-5354, is incorporated
herein by reference.)
4.01.8 Seventh Amendment to Revolving Credit and
Security Agreement dated as of July 16, 2001 between the Company
and PNC Bank, National Association, as lender and Agent (Exhibit
4.01.8 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2001, File No.1-5354, is
incorporated herein by reference.)
4.01.9 Eighth Amendment to Revolving Credit and
Security Agreement dated as of May 7, 2002 between the Company
and PNC Bank, National Association, as lender and Agent.*
4.02 Pledge Agreement dated as of July 27, 1998
between the Company and PNC. (Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, File No. 1-5354, is incorporated herein by reference.)
4.03 Rights Agreement, dated as of October 26,
1999, between the Company and American Stock Transfer & Trust
Company, as Rights Agent. (Exhibit 4.1 to the Company's Current
Report on Form 8-K dated October 29, 1999, 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.)+
10.01.3 Amendment effective as of January 1, 1992 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.01.3 to the Company's Annual Report on Form 10K for
the fiscal year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference.)+
10.01.4 Amendment dated as of May 4, 1998 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.0 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1998, File No. 1-5354, is incor
porated herein by reference.)+
10.01.5 Amendment dated as of May 30, 2001 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2001, File No. 1-5354, is
incorporated herein by reference.)+
10.01.6 Amendment dated as of June 20, 2001 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2001, 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.)+
10.02.3 Amendment dated as of January 1, 1992 to
Employment Agreement between the Company and John Tulin. (Exhibit
10.02.3 to the Company's Annual Report on Form 10K for the fiscal
year ended December 31, 1998, File No. 1-5354, is incorporated
herein by reference.)+
10.02.4 Amendment dated as of December 10, 1998 to
Employment Agreement between the Company and John Tulin. (Exhibit
10.02.4 to the Company's Annual Report on Form 10K for the fiscal
year ended December 31, 1998, File No. 1-5354, is incorporated
herein by reference.)+
10.02.5 Amendment dated as of December 27, 2001 to
Employment Agreement between the Company and John Tulin.*
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.)+
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.)+
10.03.4 Amendment dated as of January 1, 1992 to
Employment Agreement between the Company and James Tulin.
(Exhibit 10.03.4 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference.)+
10.03.5 Amendment dated as of December 10, 1998 to
Employment Agreement between the Company and James Tulin.
(Exhibit 10.03.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference.)+
10.03.6 Amendment dated as of January 1,
2002 to Employment Agreement between the Company and James
Tulin.*
10.04 Employment Agreement dated as of April 1,
2000 between the Company and Eric P. Luft. (Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2000, File No. 1-05354, is incorporated herein by
reference.)+
10.05 1987 Incentive Stock Option Plan of the Com
pany. (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.)+
10.06 Form of Termination Agreement effective
January 1, 1999 between the Company and each of the Company's
officers listed on Schedule A thereto. (Exhibit 10.05 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, 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.)
10.09.1 The New Swank, Inc. Retirement Plan as
amended and restated, effective January 1, 1999 (Exhibit 1 to
Amendment No. 12 to the Schedule 13D of the New Swank, Inc.
Retirement Plan, Marshall Tulin, John Tulin, and Raymond Vise,
filed on December 14, 2001, 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.)+
10.12 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.)+
10.13 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.)+
10.13.1 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.)+
10.13.2 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.)+
10.13.3 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.)+
10.13.4 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.)+
10.13.5 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.)+
10.13.6 Stock Option Contracts dated as of April 24,
1997 between the Company and each of Mark Abramowitz, Raymond
Vise and John J. Macht. (Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997,
File No. 1-5354, is incorporated herein by reference.)+
10.13.7 Stock Option Contract dated as of April 23,
1998 between the Company and John J. Macht. (Exhibit 10.11.7 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference.)+
10.13.8 Stock Option Contract dated as of April 23,
1998 between the Company and Raymond Vise. (Exhibit 10.11.8 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference.)+
10.13.9 Stock Option Contract dated as of April 23,
1998 between the Company and Mark Abramowitz. (Exhibit 10.11.9 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference.)+
10.13.10 Stock Option Contract dated as of April 22,
1999 between the Company and Mark Abramowitz. (Exhibit 4.01.4 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 001-05354, is incorporated
herein by reference.)+
10.13.11 Stock Option Contract dated as of April 22,
1999 between the Company and Raymond Vise. (Exhibit 4.01.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, File No. 001-05354, is incorporated herein by
reference.)+
10.13.12 Stock Option Contract dated as of April 22,
1999 between the Company and John J. Macht. (Exhibit 4.01.4 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, File No. 001-05354, is incorporated
herein by reference.)+
10.13.13 Stock Option Contract dated as of April 20,
2000 between the Company and Mark Abramowitz. (Exhibit 10.0 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2000, File No. 1-05354, is incorporated
herein by reference.)+
10.13.14 Stock Option Contract dated as of April 20,
2000 between the Company and Raymond Vise. (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2000, File No. 1-05354, is incorporated herein by
reference.)+
10.13.15 Stock Option Contract dated as of April 20,
2000 between the Company and John J. Macht. (Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2000, File No. 1-05354, is incorporated herein by
reference.)+
10.13.16 Incentive Stock Option Contract dated as of
November 6, 2001 between the Company and Marshall Tulin. (Exhibit
2 to Amendment No. 12 to the Schedule 13D of the New Swank, Inc.
Retirement Plan, Marshall Tulin, John Tulin, and Raymond Vise,
filed on December 14, 2001, is incorporated herein by
reference.)+
10.13.17 Incentive Stock Option Contract dated as of
November 6, 2001 between the Company and John Tulin. (Exhibit 3
to Amendment No. 12 to the Schedule 13D of the New Swank, Inc.
Retirement Plan, Marshall Tulin, John Tulin, and Raymond Vise,
filed on December 14, 2001, is incorporated herein by
reference.)+
10.13.18 Non-Qualified Stock Option Contracts
dated as of April 23, 1998, April 22, 1999, and April 20, 2000
between the Company and Raymond Vise. (Exhibit 4 to Amendment No.
12 to the Schedule 13D of the New Swank, Inc. Retirement Plan,
Marshall Tulin, John Tulin, and Raymond Vise, filed on December
14, 2001, is incorporated herein by reference.)+
10.14 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.)+
10.15 Letter Agreement effective August 1, 1998
between the Company and The Macht Group. (Exhibit 10.14 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 May 1, 2000 between
the Company and The Macht Group. (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-K for the fiscal quarter ended June
30, 2000, File No. 1-5354, is incorporated herein by reference.)+
10.17 Swank, Inc. 1998 Equity Incentive
Compensation Plan (Exhibit 10.0 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1998,
File No. 1-5354, is incorporated herein by reference.)+
10.18 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to John Tulin under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated herein by
reference.)+
10.19 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to Eric P. Luft under Swank,
Inc. 1998 Equity Incentive Compensation Plan. (Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference.)+
10.20 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to James Tulin under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated herein by
reference.)+
10.21 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to Lewis Valenti under Swank,
Inc. 1998 Equity Incentive Compensation Plan. (Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference.)+
10.22 Agreement dated as of July 10, 2001
between the Company and K&M Associates L.P. (Exhibit 10.22 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2001, File No. 1-5354, is incorporated herein by
reference.)+
21.01 Subsidiaries of the Company. (Exhibit 21.01
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference.)+
23.01 Consent of independent accountants.*
_________________________________________________
*Filed herewith.
+Management contract or compensatory plan or arrangement.
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: May 8, 2002 SWANK, INC.
(Registrant)
By: /s/ Jerold R. Kassner
Jerold R. Kassner,
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
__________________
John A. Tulin President and May 8, 2002
Director (principal
executive officer)
/s/ Jerold R. Kassner
__________________
Jerold R. Kassner Senior Vice May 8, 2002
President Chief
Financial Officer,
Treasurer and
Secretary (principal
financial and
accounting officer)
/s/ John J. Macht
_________________
John J. Macht Director May 8, 2002
/s/ Eric P. Luft
_________________
Eric P. Luft Director May 8, 2002
/s/ James E. Tulin
__________________
James E. Tulin Director May 8, 2002
/s/ Marshall Tulin
__________________
Marshall Tulin Director May 8, 2002
/s/ Raymond Vise
__________________
Raymond Vise Director May 8, 2002
Swank, Inc.
Schedule II - Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
Balance at Additions Balance
Beginning Charged at End
of Period to Expense Deductions of Period
For the year ended December 31, 2001
Reserve for Receivables
Allowance for
doubtful accounts $900,000 $446,000 (G) $296,000 (A)(I) $1,050,000
Allowance for cash (B)
discounts 170,000 662,000 (H) 707,000 125,000
Allowance for
customer returns 4,159,000 5,509,000 (F) 6,851,000 (C) 2,817,000
Allowance for
cooperative
advertising 590,000 820,000 (G) 935,000 (D) 475,000
Allowance for in-
store markdowns 3,170,000 8,286,000 (G) 8,741,000 (E) 2,715,000
Total 8,989,000 15,723,000 17,530,000 7,182,000
Reserve for
Inventory
Obsolescence $1,000,000 $1,469,000 (J) $1,719,000 (K) $750,000
For the year ended December 31, 2000
Reserve for Receivables
Allowance for
doubtful accounts $1,300,000 $(60,000) (G) $340,000 (A)(I) $900,000
Allowance for cash
discounts 215,000 1,494,000 (H) 1,539,000 (B) 170,000
Allowance for
customer returns 5,296,000 9,407,000 (F) 10,544,000 (C) 4,159,000
Allowance for
cooperative
advertising 444,000 915,000 (G) 769,000 (D) 590,000
Allowance for in-
store markdowns 2,921,000 4,946,000 (G) 4,697,000 (E) 3,170,000
Total 10,176,000 15,428,000 16,615,000 8,989,000
Reserve for
Inventory
Obsolescence $1,435,000 $1,952,000 (J) $2,387,000 (K) $1,000,000
For the year ended December 31, 1999
Reserve for Receivables
Allowance for
doubtful accounts $1,500,000 $ 395,000 (G) $ 595,000 (A)(I) $1,300,000
Allowance for cash
discounts 230,000 1,508,000 (H) 1,523,000 (B) 215,000
Allowance for
customer returns 4,336,000 8,439,000 (F) 7,479,000 (C) 5,296,000
Allowance for
cooperative
advertising 600,000 911,000 (G) 1,067,000 (D) 444,000
Allowance for in-
store markdowns 2,375,000 8,002,000 (G) 7,456,000 (E) 2,921,000
Total 9,041,000 19,255,000 18,120,000 10,176,000
Reserve for
Inventory
Obsolescence $485,000 $1,385,000 (J) $435,000 (K) $1,435,000
(A) Bad debts charged off as uncollectable, 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) Includes accounts receivable recoveries in excess of charge-
offs.
(J) Located in cost of sales.
(K) Inventory charged-off.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
ANNUAL REPORT ON FORM 10K
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2001
SWANK, INC.
3.01 Restated Certificate of Incorporation of the Company
dated May 1, 1987, as amended to date. (Exhibit 3.01
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, File No. 1-5354,
is incorporated herein by reference.)
3.02 By-laws of the Company, as amended to date.*
4.01 Revolving Credit and Security Agreement dated as of
July 27, 1998 between the Company and PNC Bank,
National Association, as Lender and as Agent ("PNC").
(Exhibit 4.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998,
File No. 1-5354, is incorporated herein by
reference.)
4.01.1 First Amendment to Revolving Credit and Security
Agreement dated as of July 12, 1999 between the
Company and PNC Bank, National Association, as lender
and Agent. (Exhibit 4.0 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June
30, 1999, File No. 1-5354, is incorporated herein by
reference.)
4.01.2 Second Amendment to Revolving Credit and Security
Agreement dated as of November 1, 1999 between the
Company and PNC Bank, National Association, as lender
and Agent. (Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1999, File No. 1-5354, is incorporated
herein by reference.)
4.01.3 Third Amendment to Revolving Credit and Security
Agreement dated as of December 31, 1999 between the
Company and PNC Bank, National Association, as lender
and Agent. (Exhibit 4.01.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1999, File No. 001-05354, is
incorporated herein by reference.)
4.01.4 Waiver dated March 7, 2000 to Revolving Credit and
Security Agreement dated as of July 27, 1998 between
the Company and PNC Bank, National Association, as
lender and Agent. (Exhibit 4.01.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, File No. 001-05354, is
incorporated herein by reference.)
4.01.5 Fourth Amendment to Revolving Credit and Security
Agreement dated as of October 18, 2000 between the
Company and PNC Bank, National Association, as lender
and Agent. (Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 2000, File No.1-5354, is incorporated
herein by reference.)
4.01.6 Fifth Amendment to Revolving Credit and Security
Agreement dated as of April 27, 2001 between the
Company and PNC Bank, National Association, as lender
and Agent (Exhibit 4.01.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 2001, File No. 1-5354, is incorporated
herein by reference.)
4.01.7 Sixth Amendment to Revolving Credit and Security
Agreement dated as of June 8, 2001 between the
Company and PNC Bank, National Association, as lender
and Agent (Exhibit 4.01.7 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 2000, File No. 1-5354, is incorporated
herein by reference.)
4.01.8 Seventh Amendment to Revolving Credit and Security
Agreement dated as of July 16, 2001 between the
Company and PNC Bank, National Association, as lender
and Agent (Exhibit 4.01.8 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June
30, 2001, File No.1-5354, is incorporated herein by
reference.)
4.01.9 Eighth Amendment to Revolving Credit and Security
Agreement dated as of May 7, 2002 between the
Company and PNC Bank, National Association, as lender
and Agent.*
4.02 Pledge Agreement dated as of July 27, 1998 between
the Company and PNC. (Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998, File No. 1-5354, is incorporated
herein by reference.)
4.03 Rights Agreement, dated as of October 26, 1999,
between the Company and American Stock Transfer &
Trust Company, as Rights Agent. (Exhibit 4.1 to the
Company's Current Report on Form 8-K dated October
29, 1999, 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.)+
10.01.3 Amendment effective as of January 1, 1992 to
Employment Agreement between the Company and Marshall
Tulin. (Exhibit 10.01.3 to the Company's Annual
Report on Form 10K for the fiscal year ended December
31, 1998, File No. 1-5354, is incorporated herein by
reference.)+
10.01.4 Amendment dated as of May 4, 1998 to Employment
Agreement between the Company and Marshall Tulin.
(Exhibit 10.0 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998,
File No. 1-5354, is incorporated herein by
reference.)+
10.01.5 Amendment dated as of May 30, 2001 to Employment
Agreement between the Company and Marshall Tulin.
(Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
2001, File No. 1-5354, is incorporated herein by
reference.)+
10.01.6 Amendment dated as of June 20, 2001 to Employment
Agreement between the Company and Marshall Tulin.
(Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
2001, 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.)+
10.02.3 Amendment dated as of January 1, 1992 to Employment
Agreement between the Company and John Tulin.
(Exhibit 10.02.3 to the Company's Annual Report on
Form 10K for the fiscal year ended December 31, 1998,
File No. 1-5354, is incorporated herein by
reference.)+
10.02.4 Amendment dated as of December 10, 1998 to Employment
Agreement between the Company and John Tulin.
(Exhibit 10.02.4 to the Company's Annual Report on
Form 10K for the fiscal year ended December 31, 1998,
File No. 1-5354, is incorporated herein by
reference.)+
10.02.5 Amendment dated as of December 27, 2001 to Employment
Agreement between the Company and John Tulin.*
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.)+
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.)+
10.03.4 Amendment dated as of January 1, 1992 to Employment
Agreement between the Company and James Tulin.
(Exhibit 10.03.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1998, File No. 1-5354, is incorporated herein by
reference.)+
10.03.5 Amendment dated as of December 10, 1998 to Employment
Agreement between the Company and James Tulin.
(Exhibit 10.03.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1998, File No. 1-5354, is incorporated herein by
reference.)+
10.03.6 Amendment dated as of January 1, 2002 to Employment
Agreement between the Company and James Tulin.*
10.04 Employment Agreement dated as of April 1, 2000
between the Company and Eric P. Luft. (Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2000, File No. 1-
05354, is incorporated herein by reference.)+
10.05 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.)+
10.06 Form of Termination Agreement effective January 1,
1999 between the Company and each of the Company's
officers listed on Schedule A thereto. (Exhibit 10.05
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, 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 Decem
ber 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.)
10.09.1 The New Swank, Inc. Retirement Plan as amended and
restated, effective January 1, 1999 (Exhibit 1 to
Amendment No. 12 to the Schedule 13D of the New
Swank, Inc. Retirement Plan, Marshall Tulin, John
Tulin, and Raymond Vise, filed on December 14, 2001,
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.)+
10.12 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.)+
10.13 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.)+
10.13.1 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.)+
10.13.2 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.)+
10.13.3 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.)+
10.13.4 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.)+
10.13.5 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.)+
10.13.6 Stock Option Contracts dated as of April 24, 1997
between the Company and each of Mark Abramowitz,
Raymond Vise and John J. Macht. (Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, File No. 1-5354, is
incorporated herein by reference.)+
10.13.7 Stock Option Contract dated as of April 23, 1998
between the Company and John J. Macht. (Exhibit
10.11.7 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File No.
1-5354, is incorporated herein by reference.)+
10.13.8 Stock Option Contract dated as of April 23, 1998
between the Company and Raymond Vise. (Exhibit
10.11.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File No.
1-5354, is incorporated herein by reference.)+
10.13.9 Stock Option Contract dated as of April 23, 1998
between the Company and Mark Abramowitz. (Exhibit
10.11.9 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File No.
1-5354, is incorporated herein by reference.)+
10.13.10 Stock Option Contract dated as of April 22, 1999
between the Company and Mark Abramowitz. (Exhibit
4.01.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, File No.
001-05354, is incorporated herein by reference.)+
10.13.11 Stock Option Contract dated as of April 22, 1999
between the Company and Raymond Vise. (Exhibit 4.01.4
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, File No. 001-
05354, is incorporated herein by reference.)+
10.13.12 Stock Option Contract dated as of April 22, 1999
between the Company and John J. Macht. (Exhibit
4.01.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, File No.
001-05354, is incorporated herein by reference.)+
10.13.13 Stock Option Contract dated as of April 20, 2000
between the Company and Mark Abramowitz. (Exhibit
10.0 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 2000, File No.
1-05354, is incorporated herein by reference.)+
10.13.14 Stock Option Contract dated as of April 20, 2000
between the Company and Raymond Vise. (Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2000, File No. 1-
05354, is incorporated herein by reference.)+
10.13.15 Stock Option Contract dated as of April 20, 2000
between the Company and John J. Macht. (Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2000, File No. 1-
05354, is incorporated herein by reference.)+
10.13.16 Incentive Stock Option Contract dated as of November
6, 2001 between the Company and Marshall Tulin.
(Exhibit 2 to Amendment No. 12 to the Schedule 13D of
the New Swank, Inc. Retirement Plan, Marshall Tulin,
John Tulin, and Raymond Vise, filed on December 14,
2001, is incorporated herein by reference.)+
10.13.17 Incentive Stock Option Contract dated as of November
6, 2001 between the Company and John Tulin. (Exhibit
3 to Amendment No. 12 to the Schedule 13D of the New
Swank, Inc. Retirement Plan, Marshall Tulin, John
Tulin, and Raymond Vise, filed on December 14, 2001,
is incorporated herein by reference.)+
10.13.18 Non-Qualified Stock Option Contracts dated as of
April 23, 1998, April 22, 1999, and April 20, 2000
between the Company and Raymond Vise. (Exhibit 4 to
Amendment No. 12 to the Schedule 13D of the New
Swank, Inc. Retirement Plan, Marshall Tulin, John
Tulin, and Raymond Vise, filed on December 14, 2001,
is incorporated herein by reference.)+
10.14 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.)+
10.15 Letter Agreement effective August 1, 1998 between the
Company and The Macht Group. (Exhibit 10.14 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 May 1, 2000 between the
Company and The Macht Group. (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-K for the
fiscal quarter ended June 30, 2000, File No. 1-5354,
is incorporated herein by reference.)+
10.17 Swank, Inc. 1998 Equity Incentive Compensation Plan
(Exhibit 10.0 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1998, File No. 1-5354, is incorporated herein by
reference.)+
10.18 Notice Of Performance Award And Award Agreement as of
October 21, 1998 to John Tulin under Swank, Inc. 1998
Equity Incentive Compensation Plan. (Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, File No. 1-5354,
is incorporated herein by reference.)+
10.19 Notice Of Performance Award And Award Agreement as of
October 21, 1998 to Eric P. Luft under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit
10.17 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-
5354, is incorporated herein by reference.)+
10.20 Notice Of Performance Award And Award Agreement as of
October 21, 1998 to James Tulin under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit
10.19 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-
5354, is incorporated herein by reference.)+
10.21 Notice Of Performance Award And Award Agreement as of
October 21, 1998 to Lewis Valenti under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit
10.18 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-
5354, is incorporated herein by reference.)+
10.22 Agreement dated as of July 10, 2001 between the
Company and K&M Associates L.P. (Exhibit 10.22 to the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2001, File No. 1-5354,
is incorporated herein by reference.)+
21.01 Subsidiaries of the Company. (Exhibit 21.01 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference.)+
23.02 Consent of independent accountants.*
_________________________________________________
*Filed herewith.
+Management contract or compensatory plan or arrangement.