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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, 2000
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 incorporation or organization) (I.R.S. Employer
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 _ No _x__.
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 30, 2001 was $1,124,364. 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 May 31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
PART I
ITEM 1. BUSINESS.
---------
Swank, Inc. (the "Company") was incorporated on April 17,
1936. The Company is engaged in the manufacture, sale and distribution of men's
and women's fashion accessories under the names "Kenneth Cole", "Geoffrey
Beene", "Pierre Cardin", "Claiborne", "John Henry", "Tommy Hilfiger", "Swank",
"Colours by Alexander Julian", "Anne Klein", "Anne Klein II", "Guess?" and
"DKNY", among others.
Products
- --------
The Company's segments, men's accessories and women's
accessories, are described below:
MEN'S ACCESSORIES. 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, money klips which are distributed under the names "Geoffrey Beene",
"Pierre Cardin", "Claiborne", "John Henry", "Kenneth Cole", "Tommy Hilfiger",
"Guess?", "Swank" and "Colours by Alexander Julian".
WOMEN'S ACCESSORIES. Women's accessories consist of women's
jewelry products, primarily necklaces, earrings, pendants, chokers, bracelets,
hair ornaments and scarf clips which are distributed under the names "Anne
Klein" and "Anne Klein II", "Guess?", "Kenneth Cole" and "DKNY". The Company
also manufactures women's jewelry (principally necklaces, brooches, hair
accessories and earrings) for private label distribution.
As is customary in the fashion accessories industry, substantial
percentages of the Company's sales and earnings for each of its segments 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. These practices are applicable to each of
the Company's segments and the Company believes that they are substantially
consistent throughout the fashion accessories industry.
The relative contributions to total net sales and gross profit
from the Company's segments, men's accessories and women's accessories, for the
last three fiscal years and the relative year-to-year changes in such
contributions during such period are shown in the following table (in
thousands):
3
Fiscal Year Ended December 31, Percentage Change
2000 1999 1998 2000-99 1999-98
---- ---- ---- ------- -------
CONTRIBUTION TO NET SALES
$95,769 $98,676 $91,125 Mens Accessories (3)% 8%
39,227 50,070 47,142 Womens Accessories (22)% 6%
5,880 6,071 6,442 Other (3)% (6)%
----- ----- ----- ---- ----
$140,876 $154,817 $144,709 Total Net Sales (9)% 7%
======== ======== ======== ==== ==
CONTRIBUTION TO GROSS PROFIT
$30,061 $32,766 $32,755 Mens Accessories (8)% 0%
13,292 18,195 21,178 Womens Accessories (27)% (14)%
3,184 3,437 3,646 Other (7)% (6)%
----- ----- ----- ---- ----
$46,537 $54,398 $57,579 Total Gross profit (14)% (6)%
======= ======= ======= ===== ====
The components of Net Sales are gross sales less cash discounts,
allowances and customer returns. Other includes sales of the Company's products
and other products through the Company's factory outlet stores.
Certain other financial information with regard to men's
accessories and women's accessories, including revenue, segment profit and
segment assets, appears in Note L to the Company's consolidated financial
statements on page 40 of this Annual Report on Form 10-K.
Sales and Distribution
- ----------------------
The Company's customers are primarily major retailers within the
United States. Sales to the Company's two largest customers, Federated
Department Stores, Inc. and The May Department Stores Company, accounted for
approximately 18% and 16%, respectively, of consolidated net sales in 2000,
approximately 17% and 14%, respectively, in 1999 and approximately 16% and 15%,
respectively, in 1998. In addition, Target Corp. accounted for approximately 11%
and 10% of consolidated net sales in 2000 and 1998, respectively. No other
customer accounted for more than 10% of consolidated net sales during fiscal
years 2000, 1999 or 1998. Exports to foreign countries accounted for 5% of
consolidated net sales in each of the Company's fiscal years ended December 31,
2000, 1999 and 1998, respectively.
Approximately 88 salespeople and district managers are engaged in
the sale of products of the Company, working out of sales offices located in
four major cities in the United States. The Company has separate sales forces to
handle the distribution to retailers of men's accessories and women's
accessories. In addition, the Company sells certain of its products at retail in
15 factory outlet stores located in 9 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 20%
of consolidated net sales in fiscal 2000. Historically, the Company has
manufactured and/or assembled women's and men's jewelry products at the
Company's plant in Attleboro, Massachusetts and the Company's 65% owned
subsidiary, Joyas y Cueros de Costa Rica, S.A. ("Joyas y Cueros"), manufactured
women's jewelry at a plant 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 of Joyas y Cueros
in Costa Rica, in each case, transferring its production requirements to third
party vendors. See "Recent Developments" below for further
4
information concerning the termination of jewelry production operations at the
Attleboro facility and at Joyas y Cueros. The Company manufactures belts at the
Company's plant 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 women's jewelry, 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 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 promotions are an
integral part of the Company's business. Approximately 4% of net sales was
expended on promotions in 2000, of which approximately 2% was for advertising
media, principally in national consumer magazines, trade publications,
newspapers, radio and television. The remaining approximately 2% was expended
for in-store promotions, 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, Salant,
Humphrey, Fossil, Tandy Brands Accessories, Inc. and private label programs in
men's belts; Tandy Brands Accessories, Inc., Fossil, Mundy, and retail private
label programs in small leather goods; David Donahue in men's jewelry; and Liz
Claiborne, Monet, Carol Lee, and Victoria Creations in women's jewelry. The
ability of the Company to continue to compete will depend largely upon its
ability to create new designs and products, to 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 and women's leather accessories under the name
"Pierre Cardin", (ii) women's costume jewelry under the names "Anne Klein" and
"Anne Klein II", "Kenneth Cole" and "DKNY", (iii) 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 (iv) men's
small leather goods and men's and women's costume jewelry under the name
"Guess?". The Company's "Geoffrey Beene", "Pierre Cardin", "Claiborne", "Kenneth
Cole", "John Henry", "Tommy Hilfiger", "Anne Klein" and "Anne Klein II",
"Guess?" and "DKNY" 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 provide for percentage royalty payments not exceeding 6% of net sales.
The "Anne Klein", "Anne Klein II", "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 "DKNY" license provides for
percentage royalty payments not exceeding 10% 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
5
licenses to distribute "Kenneth Cole" leather accessories expire December 31,
2002. The Company's "Kenneth Cole" jewelry licenses and its "Claiborne" license
expire December 31, 2001. The Company's "DKNY" license and its "Anne Klein" and
"Anne Klein II" license expire December 31, 2002. The Company's "Guess?" license
expire December 31, 2003. The Company's "Tommy Hilfiger" license expires
December 31, 2004.
Employees
- ---------
The Company has approximately 1,000 employees, of whom
approximately 400 are production employees. None of the Company's or Joyas y
Cueros' employees are represented by labor unions and management believes its
relationships with their respective employees to be satisfactory.
Recent Developments
- -------------------
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 third-party vendors. Manufacturing operations at Attleboro have
ceased following the substantially completed 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 in
fiscal 2000 a restructuring charge of $2,041,000 against income from operations
to cover employee severance and other payroll related costs. Additional
integration costs of $1,849,000 were also incurred in connection with the
obsolescence of certain raw materials and work-in-process.
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 has 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 has determined that Joyas y
Cueros cannot 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 costume
jewelry from a variety of domestic and foreign vendors and anticipates that it
will be 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 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 $103,000 during the first quarter of 2001 in connection with
the termination of its manufacturing workforce. Management anticipates that it
will complete the sale and liquidation of Joyas y Cueros' assets by the end of
the second quarter of 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
ITEM 2. PROPERTIES.
-----------
The Company's main administrative office is located in a
three-story building, containing approximately 193,000 square feet, on a
seven-acre site owned by the Company in Attleboro, Massachusetts. The facility
had been used to manufacture and/or assemble jewelry products for both the
women's accessories
6
and men's accessories segments. Reference is made to the information with regard
to the Company's Attleboro jewelry manufacturing facility set forth above in
Item 1 under the caption "Recent Developments."
The Company's national and international sales offices,
executive offices and regional sales offices are located in leased premises at
90 Park Avenue, New York City. The leases of such premises expire in 2010.
Regional sales offices are also located in leased premises in Atlanta, Chicago
and Beverly Hills and a branch office is leased in Scottsdale. The leases for
the regional sales offices expire from 2001 to 2003. Collectively, these offices
contain approximately 25,000 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, suspenders and certain other leather accessories
within the men's accessories segment are manufactured in 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. 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."
During fiscal 2000, Joyas y Cueros manufactured and/or
assembled women's jewelry products in a leased building of approximately 27,700
square feet and manufactured men's belts in a leased building of approximately
45,600 square feet. Both of these buildings are located in Cartago, Costa Rica.
During fiscal 2000, the Company ceased the manufacture of men's belts in Costa
Rica and the lease for the belt manufacturing building was terminated. The lease
for the jewelry manufacturing and assembling premises expires in 2003. Reference
is made to the information with regard to Joyas y Cueros 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 is
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 stores 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 302,596 square feet in the aggregate.
7
ITEM 3. LEGAL PROCEEDINGS.
------------------
(a) On June 7, 1990, the Company received notice from the
United States Environmental Protection Agency ("EPA") that it, along with
fifteen others, had been identified as a Potentially Responsible Party ("PRP")
in connection with the release of hazardous substances at a Superfund site
located in Massachusetts. This notice does not constitute the commencement of a
proceeding against the Company nor necessarily indicate that a proceeding
against the Company is contemplated. The Company, along with six other PRP's,
has entered into an Administrative Order pursuant to which, inter alia, they
have undertaken to conduct a remedial investigation/feasibility study (the
"RI/FS") with respect to the alleged contamination at the site.
It is the position of the PRPs who have undertaken to perform
the RI/FS at the Massachusetts Superfund site that the remedial investigation
has been completed. The 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 $2,087,464 as of December 31, 2000. The
Company's share of costs for the RI/FS is being allocated on an interim basis at
12.5177%.
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, 2000.
8
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 83 Chairman of the Board and Director
John A. Tulin 54 President and Chief Executive Officer and
Director
James E. Tulin 49 Senior Vice President - Merchandising
and Director
Paul Duckett 60 Senior Vice President - Distribution and
Retail Store Operations
Melvin Goldfeder 64 Senior Vice President - Special Markets
Division
Jerold R. Kassner 44 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
Eric P. Luft 45 Senior Vice President - Men's Division and
Director
W. Barry Heuser 53 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.
9
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 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 Vice President - Belt Division since
April 1994. For more than five years prior to April 1994, Mr. Heuser served as
Belts Merchandising Director.
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.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock traded in fiscal 2000 on the
Nasdaq SmallCap Market under the symbol SNKI. The following table sets forth for
fiscal 2000 and fiscal 1999 the range of high and low sales prices of the
Company's Common Stock as reported by the Nasdaq SmallCap 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.
2000 1999
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Quarter High Low High Low
- ----------------------------------------------------------------------------
First............. $4.50 $2.25 $5.43 $3.00
Second............ 3.19 1.50 4.89 3.00
Third............. 2.25 1.13 4.02 2.64
Fourth............ 1.38 .50 3.39 2.34
The Company announced that it 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 expects
that its shares will now be traded in the over-the-counter market.
At May 31, 2001, there were 2,844 holders of record of the
Company's Common Stock.
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.
12
ITEM 6. SELECTED FINANCIAL DATA.
------------------------
FINANCIAL HIGHLIGHTS
For each of the Five Years Ended
December 31
(In thousands, except share and per share data) 2000 1999 1998 1997 1996
- ------------------------------------------------------------ -------------- -------------- ------------ ------------ ----------
OPERATING DATA:
- ------------------------------------------------------------ -------------- -------------- ------------ ------------ ----------
Net sales .................................................. $ 140,876 $ 154,817 $ 144,709 $ 131,627 $ 126,522
Cost of goods sold ......................................... 94,339 100,419 87,130 77,547 74,396
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Gross profit ............................................... 46,537 54,398 57,579 54,080 52,126
Selling and administrative expenses......................... 51,411 49,545 49,810 47,748 48,112
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Restructuring expenses ..................................... 2,041
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Income (loss) from operations .............................. (6,915) 4,853 7,769 6,332 4,014
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Interest expense, net ...................................... 2,384 1,790 1,672 1,484 1,855
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and minority interest .... (9,299) 3,063 6,097 4,848 2,159
Provision for income taxes ................................ 3,201 961 2,435 1 860
Minority interest in net loss of consolidated subsidiary ... 505 285 -- -- --
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Net income (loss) .......................................... $ (11,995) $ 2,387 $ 3,662 $ 4,847 $ 1,299
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Share and per share information:
Weighted average common shares outstanding ............ 5,522,513 5,522,305 5,511,287 5,458,945 5,350,442
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Net income (loss) per common share .................... $ (2.17) $ .43 $ .66 $ .89 $ .24
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Weighted average common shares
Outstanding assuming dilution .................... 5,522,513 5,561,286 5,581,712 5,477,577 5,350,442
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Net income (loss) per share assuming dilution ......... $ (2.17) $ .43 $ .66 $ .88 $ .24
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Additions to property, plant and equipment ................. $ 583 $ 1,520 $ 1,156 $ 1,155 $ 1,250
Depreciation and amortization .............................. $ 1,456 $ 1,616 $ 2,181 $ 2,167 $ 2,027
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Financial Position (In thousands, except per share data)
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
Current assets ............................................. $ 51,936 $ 61,271 $ 61,733 $ 48,840 $ 37,905
Current liabilities ........................................ 32,430 30,842 32,228 24,485 18,865
Net working capital ........................................ 19,506 30,429 29,505 24,355 19,040
Property, plant and equipment, net ......................... 3,978 6,046 5,574 6,157 6,760
Total assets ............................................... 62,497 74,940 72,969 59,949 48,787
Long-term obligations ...................................... 8,821 9,999 9,563 8,603 8,591
Stockholders' equity ....................................... 21,246 33,594 31,178 26,861 21,331
Stockholders' equity per weighted average
common share assuming dilution ................... $ 3.85 $ 6.04 $ 5.59 $ 4.90 $ 3.99
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
-----------------------------------------------------------
PERCENTAGE CHANGES
- ----------------- -------------- ------------- ----- ------------------------------------------------ ----------------- -----------
2000 1999 1998 2000-99 1999-98
- ----------------- -------------- ------------- ----- ------------------------------------------------ ----------------- -----------
CONTRIBUTION TO NET SALES
$ 95,769 $ 98,676 $ 91,125 Men's Accessories (3)% 8 %
39,227 50,070 47,142 Women's Accessories (22)% 6 %
5,880 6,071 6,442 Other (3)% (6)%
- ----------------- -------------- ------------- ----- ------------------------------------------------ ----------------- -----------
$140,876 $154,817 $144,709 Total Net Sales (9)% 7 %
- ----------------- -------------- ------------- ----- ------------------------------------------------ ----------------- -----------
CONTRIBUTION TO GROSS PROFIT
$ 30,061 $ 32,766 $ 32,755 Men's Accessories (8)% -- %
13,292 18,195 21,178 Women's Accessories (27)% (14)%
3,184 3,437 3,646 Other (7)% (6)%
- ----------------- -------------- ------------- ----- ------------------------------------------------ ----------------- -----------
$ 46,537 $ 54,398 $ 57,579 Total Gross Profit (14)% (6)%
- ----------------- -------------- ------------- ----- ------------------------------------------------ ----------------- -----------
The table indicates the relative contribution to net sales and gross profit for
each of the Company's reportable segments (in thousands except for percentage
changes). Men's Accessories include belts, wallets and other small leather
goods, suspenders, and jewelry. Women's Accessories consist of jewelry products.
Other includes sales through the Company's factory outlet stores. The components
of Net Sales are gross sales less cash discounts, markdowns and allowances, and
customer returns.
2000 VS. 1999
NET SALES
- ---------
Net sales for the year ended December 31, 2000 decreased by
$13,941,000 or 9.0% compared to 1999. Net Sales decreased by $2,908,000 or 2.9%
for Men's Accessories and by $10,841,000 or 21.7% for Women's Accessories. The
decline in Men's Accessories Net Sales was primarily due to an increase in
customer allowances and decreases in men's 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 men's 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, 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.
The decline in Women's Accessories Net Sales was principally
due to lower shipments under certain private label jewelry programs to a major
mass merchandising customer and increases in customer allowances to support
various merchandise programs at retail. The Company made substantial shipments
of this merchandise during the second half of 1999 when several new merchandise
programs were expanded. The reduction in Net Sales for Women's Accessories was
also due to decreases in certain licensed women's jewelry collections partially
offset by an in increase in the Company's DKNY women's jewelry line which the
Company began shipping during the third quarter of 1999.
14
Net Sales in 2000 were affected by the returns adjustments set
forth below. 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 were as
follows:
INCREASE (DECREASE) IN NET SALES (IN THOUSANDS)
------------------------- ------------- ------------------- ---------------
2000 1999 CHANGE
---- ---- ------
------------------------- ------------- ------------------- ---------------
Men's Accessories $1,740 $(488) $2,228
Women's Accessories 604 846 (242)
------------------------- ------------- ------------------- ---------------
GROSS PROFIT
- ------------
Gross profit for the year ended December 31, 2000 decreased by
$7,861,000 or 14.5% compared to 1999 due primarily to lower Net Sales and higher
manufacturing-related costs, offset partially by lower inventory-related costs.
Gross profit expressed as a percentage of net sales fell to 33.0% from 35.1% in
1999.
Gross profit for Men's Accessories decreased by $2,706,000 or
8.3% in 2000 due mainly to lower Net Sales, 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. Men's Accessories gross profit as a percentage of net sales
declined to 31.4% from 33.2% in 1999 due to the decrease in Net Sales and the
increase in inventory-related costs.
Gross profit for Women's Accessories declined by $4,902,000 or
26.9% primarily due to the reduction in Net Sales and an increase in unfavorable
domestic overhead variances associated with the plant closure discussed above,
partially offset by lower inventory-related costs. Gross profit was also
unfavorably impacted by higher losses incurred by the Company's Costa Rican
subsidiary. The Company wrote-down the value of certain assets including
inventory, and machinery and equipment, associated with this facility at
December 31, 2000 resulting in a non-recurring charge of $1,218,000. Subsequent
to fiscal 2000 year end, the Company determined to cease all jewelry production
activity at Joyas y Cueros. Women's Accessories gross profit as a percentage of
Net Sales was 33.9% in 2000 compared to 36.3% for the prior year.
Gross profit includes the effect of adjustments recorded in
the second quarter to reflect the variance between customer returns of prior
year shipments actually received in the current year and the estimate used to
establish the allowance for customer returns at the end of the preceding fiscal
year. The effect of these adjustments on gross profit was as follows:
INCREASE (DECREASE) IN GROSS PROFIT (IN THOUSANDS)
- ------------------------- ------------------ ---------------- --------------
2000 1999 CHANGE
---- ------
- ------------------------- ------------------ ---------------- --------------
Men's Accessories $985 $(305) $1,290
Women's Accessories 528 577 (49)
- ------------------------- ------------------ ---------------- --------------
15
SELLING AND ADMINISTRATIVE EXPENSES
- -----------------------------------
Selling and administrative expenses increased by $1,866,000 or
3.8% in 2000 compared to the prior year and, expressed as a percentage of Net
Sales, increased to 36.5% compared to 32.0% in 1999 principally due to the
decrease in Net Sales. The increase in selling expenses was primarily due to
higher advertising and promotional expenditures associated with new retail
fixturing programs for women's jewelry and to support certain licensed men's and
women's merchandise collections. Administrative expenses decreased due to 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 last year's second quarter in
connection with the settlement of litigation. Advertising and promotional
expenditures as a percentage of Net Sales increased to 4.2% in 2000 from 2.7% in
1999 (see table under "Promotional Expenditures" below).
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 have ceased
following the substantially completed 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 has 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 raw material and work in process inventory
obsolescence.
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 has been
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. The Company anticipates that
the restructuring will generate net pre-tax annualized savings of approximately
$3,000,000 to $5,000,000 reflecting enhanced gross profit margins from
re-sourcing jewelry products to lower cost suppliers and reduced manufacturing
support costs in Attleboro. 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 $594,000 or 33.2% for the year
ended December 31, 2000 compared to 1999. The increase was primarily due to a
225 basis point increase in the Company's average borrowing costs in 2000
compared to the prior year (see "Interest Charges" and "Liquidity and Capital
Resources").
16
1999 VS. 1998
NET SALES
- ---------
Net sales for the year ended December 31, 1999 increased by
$10,108,000 or 7.0% compared to 1998, reflecting the Company's third consecutive
year of increased sales. Net Sales increased by $7,551,000 or 8.3% for Men's
Accessories and $2,928,000 or 6.2% for Women's Accessories. The improvement in
Men's Accessories Net Sales in 1999 was primarily due to increased domestic
shipments of private label men's personal leather goods and belts to both new
and existing customers and increased sales of certain branded men's merchandise,
including the Company's Claiborne for Men line which was introduced during the
third quarter of 1998. The Company commenced shipments of a new private label
personal leather goods program during the first quarter of 1999 and also
increased its shipments of excess and discontinued merchandise during the year
compared to 1998. Women's Accessories Net Sales rose in 1999 as the Company
substantially increased its shipments of private label women's jewelry in
response to improved retail sales and commenced shipments of several new private
label programs during the year. The increase in Women's Accessories Net Sales
was also due to higher shipments of the Company's Kenneth Cole merchandise first
sold to retailers during the fourth quarter of 1998 and the introduction of the
Company's new DKNY women's jewelry line which the Company began shipping during
the third quarter of 1999.
Net Sales in 1999 were also affected by the returns
adjustments set forth below. 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
were as follows:
INCREASE (DECREASE) IN NET SALES (IN THOUSANDS)
------------------------- --------------------- --------------- -------------
1999 1998 CHANGE
------------------------- --------------------- --------------- -------------
Men's Accessories $(488) $1,693 $(2,181)
Women's Accessories 846 848 (2)
------------------------- --------------------- --------------- -------------
GROSS PROFIT
- ------------
Gross profit for the year ended December 31, 1999 decreased by
$3,181,000 or 5.5% compared to 1998 due primarily to higher inventory and
manufacturing related costs, partially offset by increased Net Sales. Gross
profit expressed as a percentage of net sales fell to 35.1% from 39.8% in 1998.
Gross profit for Men's Accessories increased by $11,000 in
1999 due mainly to unfavorable capacity variances associated with a decrease in
domestic production levels in response to inventory requirements for
manufactured men's belts, offset by an increase in gross margin from higher
sales. Men's Accessories gross profit as a percentage of Net Sales declined to
33.2% from 35.9% in 1998 due to increased domestic production-related costs,
higher inventory control expenses related to the disposition of excess and out
of line merchandise, and increased product costs resulting from a less favorable
sales mix.
Gross profit for Women's Accessories declined by $2,983,000 or
14.1% due to increases in certain inventory-related costs associated with
increased sales of out of line merchandise and unfavorable domestic
manufacturing variances, partially offset by an increase in Net Sales. The
Company reduced production at its domestic jewelry manufacturing facility in
1999 in response to ongoing changes in product
17
sourcing strategies. Gross profit was also unfavorably impacted by start-up
losses associated with the acquisition of Joyas y Cueros de Costa Rica, S.A.
during the first half of the year. Women's Accessories gross profit as a
percentage of Net Sales was 36.3% in 1999 compared to 44.9% for the prior year.
Gross profit includes the effect of adjustments recorded in
the second quarter to reflect the variance between customer returns of prior
year shipments actually received in the current year and the estimate used to
establish the allowance for customer returns at the end of the preceding fiscal
year. The effect of these adjustments on gross profit was as follows:
INCREASE (DECREASE) IN GROSS PROFIT (IN THOUSANDS)
--------------------------- -------------------- --------------- -------------
1999 1998 CHANGE
--------------------------- -------------------- --------------- -------------
Men's Accessories $(305) $1,155 $(1,460)
Women's Accessories 577 633 (56)
--------------------------- -------------------- --------------- -------------
SELLING AND ADMINISTRATIVE EXPENSES
- -----------------------------------
Selling and administrative expenses decreased by $265,000 or
less than 1% in 1999 compared to the prior year and, expressed as a percentage
of Net Sales, fell to 32.0% compared to 34.4% in 1998 principally due to the
increase in Net Sales. The decrease in selling expenses was primarily due to
reductions in employee incentive compensation, a gain on the curtailment of the
1987 deferred compensation plan as described in Note G to the accompanying
consolidated financial statements, and certain other fringe benefit costs offset
by higher variable selling costs associated with increased sales volume and
increased advertising and promotional expenditures to support both new and
existing Women's jewelry retail merchandise programs. Expenses recorded
primarily in the second quarter for severance costs associated with a voluntary
workforce reduction program were largely offset by a gain of $500,000 also
recorded during the second quarter in connection with the settlement of
litigation. Advertising and promotional expenditures as a percentage of Net
Sales decreased to 2.5% in 1999 from 2.6% in 1998 (see table under "Promotional
Expenditures" below).
INTEREST EXPENSE
- ----------------
Net interest expense increased $118,000 or 7.1% for the year
ended December 31, 1999 compared to 1998. The effect on interest expense of
higher borrowing levels in 1999 was partially offset by lower average interest
rates. Although domestic short term interest rates generally rose in 1999, the
Company's weighted average interest rate fell by 119 basis points compared to
last year generally reflecting more favorable borrowing terms (see "Interest
Charges" and "Liquidity and Capital Resources").
PROVISION FOR INCOME TAXES
- --------------------------
The Company recorded an income tax provision in 2000 at a
combined federal and state effective tax rate of 34.4%. The effective tax rate
in 2000 was primarily impacted by the recording of a $5,208,000 valuation
allowance on the deferred tax asset. (See Note E to the accompanying
consolidated financial statements for further discussion). The effective tax
rate was also effected by differences associated with nontaxable life insurance
benefits, the operating loss incurred by Joyas y Cueros and other items. The
Company recorded an income tax provision in 1999 at a combined federal and state
effective tax rate of 31.4%. 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. The Company's
effective tax rate in 1998 was 39.9% which approximated the combined federal and
state statutory rate.
18
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 required by its licensors. These expenses increased by
$1,874,000 in 2000 due primarily to additional cooperative and national
advertising costs and increased in-store fixturing expenditures related to
certain of the Company's branded merchandise collections. Advertising and
promotional expenditures increased by $106,000 in 1999 primarily due to the
increase in Net Sales. The following table summarizes the various promotional
expenses incurred by the Company:
- ---------------------------------- -------------- ------------ -------------
2000 1999 1998
---- ---- ----
- ---------------------------------- -------------- ------------ -------------
Cooperative advertising $1,545 $910 $1,355
Displays 1,390 1,314 1,227
National advertising and other 2,779 1,620 1,156
----- ----- -----
Total $5,714 $3,844 $3,738
------ ------ ------
Percentage of net sales 4.1% 2.5% 2.6%
---- ---- ----
- ---------------------------------- -------------- ------------ -------------
INTEREST CHARGES
- ----------------
Average monthly borrowings and weighted average borrowing
interest rates under the Company's revolving credit facility were, respectively
$23,142,000 and 9.94% in 2000; $22,995,000 and 7.69% in 1999, and $16,572,000
and 8.88% in 1998.
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, 2000 which the Company was able to
fund from bank financing currently 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 cash flow within its amended revolving credit
agreement; and ultimately, returning to profitability.
In July 1998, the Company signed a new five year $30 million
revolving credit agreement (the "1998 Revolving Credit Agreement") with PNC
Bank, National Association (the "Bank"). The 1998 Revolving Credit Agreement
replaced the Company's prior $25 million credit facility and 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.
19
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 million to $1.5 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 has 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 million.
The Company does not believe that the imposition of such reserves will have a
material affect on its liquidity.
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 builds inventory during the first three quarters of the
year to meet the seasonal demand and accounts receivable peak in the fourth
quarter. In 2000 and in 1999, the Company requested and obtained a temporary
increase in the 1998 Revolving Credit Agreement to $33 million 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.
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. 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.
The Company has taken certain steps and has instituted
additional initiatives intended to improve its results from operations and cash
flows, including the closing of its Attleboro, Massachusetts and Cartago, Costa
Rica manufacturing facilities; entering into a sale-leaseback transaction with
respect to its South Norwalk, Connecticut manufacturing facility; reviewing the
status of its various operating divisions; and, instituting process improvements
to 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 (see Note O of the accompanying consolidated financial statements); 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; the realignment of production levels to more
accurately reflect projected shipping requirements; and the increased focus on
sales of closeout and discontinued merchandise. As a result of the above
actions, inventory levels were lower by $4,503,000 at December 31, 2000,
compared with the prior year. In April 2001, the Company received a refund of
$2,251,000 from the Internal Revenue Service for federal income taxes paid in
prior years. In addition, 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. The net proceeds of the
sale were used to reduce the Company's outstanding revolving credit balance.
Although the results of these actions cannot be predicted, the Company believes
that these initiatives, together with certain other strategies currently under
consideration, will contribute to profitability and positive cash flows from
operations.
20
Although no assurances can be given, the Company believes that
execution of the above initiatives and attaining adequate sales revenue will
provide sufficient liquidity for the Company to continue to operate 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 continue to operate as a going concern in its present form.
The Company announced that it 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 expects
that its shares will now be 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.
CASH FLOWS. Cash used in operations totaled $3,250,000 in 2000
compared to cash provided by operations of $1,621,000 in 1999. Cash used in
operations in 2000 was due principally to the net loss. Cash provided by
operations in 1999, was primarily from a reduction in consolidated inventory
levels of $4,791,000, net of an increase of $397,000 due to the inclusion of the
accounts of Joyas y Cueros. 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. Working capital increased by $924,000
in 1999. Cash used in investing activities for capital expenditures was $583,000
and $1,520,000 in 2000 and 1999, respectively, and $788,000 and $707,000,
respectively, was used for life insurance premiums principally to fund deferred
compensation. Financing activities provided $3,844,000 and $1,092,000 in 2000
and 1999, respectively, primarily from increases in net borrowings under the
Company's revolving credit facility, partially offset by repayments of long-term
debt in 2000 and 1999, and by advances to retirement plan in 2000.
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. The Company also expects to continue to make
enhancements and upgrades to its information and telecommunications systems.
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.
21
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
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 is
effective no later than the quarter ended December 31, 2000. SAB No. 101
clarifies the Securities and Exchange Commission's views regarding recognition
of revenue. The Company has adopted SAB No. 101 in the fourth quarter of 2000.
The adoption of SAB 101 has resulted in the re-classification of certain
in-store customer allowances from selling and administrative expenses to Net
Sales. Net sales, gross profit, and selling & administrative expenses shown in
the Company's Consolidated Statement of Operations have been restated to conform
with the requirements of SAB 101. The effect of SAB 101 on the Company's
financial statements was to reduce both Net Sales and Selling and Administrative
expenses by $9,841,000, $8,002,000, and $7,061,000 for 2000, 1999, and 1998
respectively. These reclassifications had no effect on consolidated net income.
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
This statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS 133 is effective for fiscal years beginning after June 30, 1999.
However, Statement of Accounting Standards No. 137, "Deferral of the Effective
Date of SFAS 133" was issued in July 1999 and delayed the effective date of SFAS
133 to fiscal years beginning after June 15, 2000. Management believes that the
adoption of SFAS 133 will have no material effect on the Company's 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 two largest customers accounted for 21% and 14%
of consolidated trade receivables (gross of allowances) in 2000 and 16% and 15%
in 1999. The Company's third largest customer accounted for 10% of consolidated
trade receivables 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.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
SWANK, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31
(Dollars in thousands)
ASSETS 2000 1999
- ------------------------------------------------------------------------------------------------ -------- --------
Current:
Cash and cash equivalents ..................................................................... $ 999 $ 1,258
Accounts receivable, less allowances of $8,989 and $10,176 .................................... 14,386 16,328
Inventories, net:
Raw materials ............................................................................... 6,347 7,666
Work in process ............................................................................. 3,616 5,924
Finished goods .............................................................................. 21,927 22,803
- ------------------------------------------------------------------------------------------------ -------- --------
31,890 36,393
Deferred income taxes ......................................................................... 1,450 5,963
Prepaid and other ............................................................................. 3,211 1,329
- ------------------------------------------------------------------------------------------------ -------- --------
Total current assets ........................................................................ 51,936 61,271
- ------------------------------------------------------------------------------------------------ -------- --------
Property, plant and equipment, at cost:
Land and buildings ........................................................................... 7,775 7,717
Machinery, equipment and software ............................................................ 11,427 18,340
Improvements to leased premises .............................................................. 1,049 1,049
Capital leases ............................................................................... 1,471 1,471
- ------------------------------------------------------------------------------------------------ -------- --------
21,722 28,577
Less accumulated depreciation and amortization ............................................... 17,744 22,531
- ------------------------------------------------------------------------------------------------ -------- --------
Net property, plant and equipment ......................................................... 3,978 6,046
- ------------------------------------------------------------------------------------------------ -------- --------
Other assets ................................................................................... 6,583 7,623
- ------------------------------------------------------------------------------------------------ -------- --------
TOTAL ASSETS ................................................................................... $ 62,497 $ 74,940
- ------------------------------------------------------------------------------------------------ -------- --------
LIABILITIES
- ------------------------------------------------------------------------------------------------ -------- --------
Current:
Notes payable to banks ....................................................................... $ 21,104 $ 16,762
Current portion of long-term debt ............................................................ 154 181
Accounts payable ............................................................................. 3,120 4,162
Accrued employee compensation ................................................................ 3,367 3,296
Accrued royalties payable .................................................................... 1,895 1,896
Income taxes payable ......................................................................... -- 1,701
Other liabilities ............................................................................ 2,790 2,844
- ------------------------------------------------------------------------------------------------ -------- --------
Total current liabilities ................................................................. 32,430 30,842
- ------------------------------------------------------------------------------------------------ -------- --------
Long-term obligations .......................................................................... 8,821 9,999
Minority Interest in consolidated subsidiary ................................................... -- 505
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 1,580
Retained earnings .............................................................................. 19,677 31,672
Accumulated other comprehensive income ......................................................... 88 15
- ------------------------------------------------------------------------------------------------ -------- --------
21,768 33,830
Treasury stock at cost, 111,222 and 111,173 shares .................................... (236) (236)
Deferred employee benefits ............................................................ (286) --
Total stockholders' equity ..................................................................... 21,246 33,594
- ------------------------------------------------------------------------------------------------ -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................................... $ 62,497 $ 74,940
- ------------------------------------------------------------------------------------------------ -------- --------
The accompanying notes are an integral part of the consolidated financial statements
23
SWANK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For Each of the Three Years Ended
December 31
(In thousands, except share and per share data) 2000 1999 1998
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Net sales ................................................................... $ 140,876 $ 154,817 $ 144,709
Cost of goods sold .......................................................... 94,339 100,419 87,130
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Gross profit ................................................................ 46,537 54,398 57,579
Selling and administrative expenses ......................................... 51,411 49,545 49,810
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Restructuring expenses ...................................................... 2,041 -- --
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Income (loss) from operations ............................................... (6,915) 4,853 7,769
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Interest expense, net ....................................................... 2,384 1,790 1,672
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Income (loss) before income taxes and minority interest ..................... (9,299) 3,063 6,097
Provision for income taxes .................................................. 3,201 961 2,435
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Minority interest in net loss of consolidated subsidiary .................... 505 285 --
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Net income (loss) ........................................................... $ (11,995) $ 2,387 $ 3,662
- ----------------------------------------------------------------------------- ----------- ----------- -----------
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Net income (loss) per common share .......................................... $ (2.17) $ .43 $ .66
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Net income (loss) per common share assuming dilution ........................ $ (2.17) $ .43 $ .66
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Weighted average common shares outstanding .................................. 5,522,513 5,522,305 5,511,287
- ----------------------------------------------------------------------------- ----------- ----------- -----------
Weighted average common shares outstanding assuming dilution ................ 5,522,513 5,561,286 5,581,712
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DEFERRED EMPLOYEE
For Each of the Three Years BENEFITS TREASURY STOCK
Ended December 31, COMMON CAPITAL IN ACCUM OTHER -------- --------------
2000, 1999 and 1998 STOCK, PAR EXCESS OF COMPREHENSIVE RETAINED NUMBER NUMBER
(Dollars in thousands) VALUE $.10 PAR VALUE INCOME EARNINGS OF SHARES AMOUNT OF SHARES AMOUNT
- ---------------------------------------------- ----------- ----------------- ----------- ----------- ---------- ----------- --------
Balance, December 31, 1997 $1,684 $570 $0 $25,623 514,437 $(307) 333,519 $(709)
Exercise of stock options 5 40
Allocation to plan participants 163 (514,437) 307
Equity incentive compensation 140
Net income 3,662
- ---------------------------------------------- ----------- ------------- -------------- ----------- ---------- ----------- ---------
Balance, December 31, 1998 1,689 913 0 29,285 0 0 333,519 (709)
Exercise of stock options 1 13
Currency translation adjustment 15
Net income 2,387
- ---------------------------------------------- ----------- ------------- -------------- ----------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1999 1,690 926 15 31,672 0 0 333,519 (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)
- ---------------------------------------------- ----------- ------------- -------------- ----------- ---------- ----------- ---------
The accompanying notes are an integral part of the consolidated financial statements
24
SWANK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For Each of the Three Years Ended December 31 2000 1999 1998
- ---------------------------------------------------------------------------------------- -------- -------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................................... $(11,995) $ 2,387 $ 3,662
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
(Recoveries) provision for bad debts .............................................. (60) 304 (171)
Minority interest in net loss of consolidated subsidiary .......................... (505) (284) --
Depreciation and amortization ..................................................... 1,456 1,616 2,181
Loss on sale of equipment and investments ......................................... 551 13 10
(Increase) decrease in deferred income taxes ...................................... 4,513 (1,894) (827)
Compensation adjustment to capital in excess of par ............................... (140) -- 140
(Increase) decrease in cash surrender value of life insurance ..................... 997 (1,915) (793)
(Loss) on disposition of barter credits ........................................... 267 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ........................................ 2,002 (2,014) (2,761)
(Increase) decrease in inventories ................................................ 4,237 5,188 (10,217)
Decrease in prepaid and other ..................................................... 1,047 248 1,038
(Increase) in income taxes recoverable ............................................ (1,941) -- --
Increase (decrease) in accounts payable,
accrued and other liabilities .................................................... (981) (2,579) 1,429
Increase (decrease) in income taxes payable ....................................... (1,701) (187) 1,635
Increase (decrease) in long-term obligations ...................................... (997) 738 1,200
- ---------------------------------------------------------------------------------------- -------- -------- --------
Net cash provided by (used in) operations ....................................... (3,250) 1,621 (3,474)
- ---------------------------------------------------------------------------------------- -------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................. (583) (1,520) (1,156)
Proceeds from sale of equipment ...................................................... 445 -- 7
Premiums on life insurance ........................................................... (788) (707) (975)
Proceeds from sale of investments .................................................... -- -- 420
- ---------------------------------------------------------------------------------------- -------- -------- --------
Net cash (used in) investing activities .......................................... (926) (2,227) (1,704)
- ---------------------------------------------------------------------------------------- -------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreements ......................................... 71,221 70,733 86,545
Payments of revolving credit obligations ............................................. (66,879) (69,292) (78,741)
Debt issuance costs .................................................................. -- -- (253)
Principal payments on long-term debt ................................................. (209) (363) (2,896)
Proceeds from exercise of employees' stock options ................................... -- 14 45
Advance to retirement plan ........................................................... (289) -- --
- ---------------------------------------------------------------------------------------- -------- -------- --------
Net cash provided by financing activities ........................................ 3,844 1,092 4,700
- ---------------------------------------------------------------------------------------- -------- -------- --------
Currency translation adjustment ........................................................ 73 15
- ---------------------------------------------------------------------------------------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ................................... (259) 501 (478)
Cash and cash equivalents at beginning of year ......................................... 1,258 757 1,235
- ---------------------------------------------------------------------------------------- -------- -------- --------
Cash and cash equivalents at end of year ............................................... $ 999 $ 1,258 $ 757
- ---------------------------------------------------------------------------------------- -------- -------- --------
Cash paid during the year for:
Interest .......................................................................... $ 2,392 $ 1,806 $ 1,587
Income taxes ...................................................................... $ 2,501 $ 3,400 $ 1,626
Noncash transactions:
Allocation of shares to ESOP participants ......................................... -- -- $ 470
Minority interest in acquisition of subsidiary .................................... -- $ 789 --
- ---------------------------------------------------------------------------------------- -------- -------- --------
The accompanying notes are an integral part of the consolidated financial statements
25
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 and
women's jewelry. Its products are sold both domestically and internationally,
principally through department stores, and also through specialty stores and
mass merchandisers. The Company operates a number of factory outlet stores
primarily to distribute excess and out of line merchandise. 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, 2000 which the Company was able to
fund from bank financing currently 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 cash flow within its amended revolving credit
agreement; and ultimately, returning to profitability.
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. 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.
The Company has taken certain steps and has instituted
additional initiatives intended to improve its results from operations and cash
flows, including the closing of its Attleboro, Massachusetts and Cartago, Costa
Rica manufacturing facilities; entering into a sale-leaseback transaction with
respect to its South Norwalk, Connecticut manufacturing facility; reviewing the
status of its various operating divisions; and, instituting process improvements
to 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 (see Note O of the accompanying consolidated financial statements); 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; the realignment of production levels to more
accurately reflect projected shipping requirements; and the increased focus on
sales of closeout and discontinued merchandise. As a result of the above
actions, inventory levels were lower by $4,503,000 at December 31, 2000,
compared with the prior year. In April 2001, the Company received a refund of
$2,251,000 from the Internal Revenue Service for federal income taxes paid in
prior years. In addition, 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. The net proceeds of the
sale were used to reduce the Company's outstanding revolving credit balance.
Although the results of these actions cannot be predicted, the Company believes
that these initiatives, together with certain other strategies currently under
consideration, will contribute to profitability and positive cash flows from
operations.
26
Although no assurances can be given, the Company believes that
execution of the above initiatives and attaining adequate sales revenue will
provide sufficient liquidity for the Company to continue to operate 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 continue 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, in-store markdowns 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 2000, 1999 and
1998 were $(60), $304, and $(171), respectively.
MARKET RISK
The Company sells products primarily to major retailers within
the United States. The Company's two largest customers accounted for 21% and 14%
of consolidated trade receivables (gross of allowances) in 2000 and 16% and 15%
in 1999. The Company's third largest customer accounted for 10% of consolidated
trade receivables in 2000.
The Company, in the normal course of business, is
theoretically exposed to interest rate change
27
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
fashion oriented and, as a result, is subject to risk of rapid obsolescence.
Management believes that inventory has been adequately marked down, where
appropriate, and that the Company has adequate channels to dispose of excess and
obsolete inventory.
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.
Effective January 1, 1999 the Company adopted the provisions
of Statement of Position 98-1 ("SOP 98-1"), "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" which establishes criteria for
capitalizing internal and external costs associated with software development.
SOP 98-1 requires that the new accounting treatment be applied prospectively
from the date of adoption. In 1999, the Company capitalized software development
costs pursuant to SOP 98-1 which had the effect of increasing income before
taxes by $250 and net income by $172. Exclusive of the effects of this change,
net income per share and net income per share assuming dilution would have been
$.13 and $.13, respectively.
The Company has capitalized lease obligations for computer
hardware and software equal to the lesser of the present value of the minimum
lease payments or the fair market value of the leased property at the inception
of the lease. The cost of the leased assets is amortized on a straight line
basis over the lesser of the term of the lease obligation or the life of the
asset, generally 3 to 5 years.
Expenditures for maintenance and repairs and minor renewals
are charged to expense; betterments and major renewals are capitalized. Upon
disposition, cost and related accumulated depreciation are removed from the
accounts with any related gain or loss reflected in results of operations.
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
28
analysis, the Company wrote-down the value of certain machinery & equipment at
its Costa Rica facility. The Company recognized an expense of $502,000 which was
included in selling and administrative expenses as of 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
provisions of Statement of Financial Accounting Standards No. 123 "Accounting
for Stock Based Compensation", which include information with respect to
stock-based compensation determined under the "fair value" method. The Company
uses the Black-Scholes formula to determine the fair value of options on the
grant date 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
29
separately from retained earnings and additional capital in excess of par value
in the equity section of the balance sheet. Reportable other comprehensive
income of $73 in 2000 and $15 in 1999 arose from gains resulting from the
effects of foreign currency translation.
SEGMENTS AND RELATED INFORMATION
The Company has two reportable segments, men's accessories and
women's accessories. See Note L.
C. RESTRUCTURING CHARGE
On March 16, 2000, the Company announced a plan to cease
production operations at its jewelry manufacturing facility located in
Attleboro, Massachusetts ("Attleboro") and transfer its remaining domestic
jewelry production requirements to its majority-owned subsidiary, Joyas y Cueros
de Costa Rica, S.A. and certain third-party vendors. Manufacturing operations at
Attleboro have ceased following the substantially completed 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 has 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 raw material and work in
process inventory obsolescence and are included in cost of goods sold.
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 has been
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.
D. SHORT-TERM BORROWINGS
------------------------------------------------------------------ ------------------ ----------------- -----------------
2000 1999 1998
------------------------------------------------------------------ ------------------ ----------------- -----------------
At December 31:
Total lines $30,000 $30,000 $30,000
Weighted average interest rate 10.75% 8.50% 7.75%
For the year:
Monthly average borrowing outstanding 23,142 22,995 16,572
Maximum borrowing outstanding at any month end 29,405 29,974 25,460
Monthly interest rate (weighted average) 9.94% 7.69% 8.88%
Balance at December 31 21,104 16,762 15,321
------------------------------------------------------------------ ------------------ ----------------- -----------------
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
October 2000, the Company negotiated with its lender a temporary increase in its
$30 million revolving credit facility to $33 million for the period October 18,
2000 through December 31, 2000 to accommodate seasonal working capital
requirements.
30
In July 1998, the Company signed a new five year $30 million
revolving credit agreement (the "1998 Revolving Credit Agreement") with PNC
Bank, National Association (the "Bank"). The 1998 Revolving Credit Agreement
replaced the Company's prior $25 million credit facility and is collateralized
by substantially all of the Company's domestic accounts receivable, inventory
and machinery and equipment. The 1998 Revolving Credit Agreement was amended on
April 27, 2001 (See Note O). The terms of the 1998 Revolving Credit Agreement as
amended permit the Company to borrow against a percentage of eligible accounts
receivable and eligible inventory at an interest rate equal to the Bank's prime
rate plus 1.50%. The 1998 Revolving Credit Agreement requires a facility fee of
3/8% per annum on the unused portion of the revolving credit facility. Under the
1998 Revolving Credit Agreement, the Company must maintain a Fixed Charge
Coverage and Tangible Net Worth ratios, on a quarterly basis, and minimum
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBIDTA") at
December 31, 2000. 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. In 2000 and in
1999, the Company requested and obtained a temporary increase in the 1998
Revolving Credit Agreement to $33 million 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.
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. 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.
In May, 1996, the Company obtained revolving credit financing
from IBJ Schroder Bank & Trust Company, as agent for up to $25 million with a
sublimit of $3 million in letters of credit (the "1996 Revolving Credit
Agreement"). The proceeds of the 1996 Revolving Credit Agreement were used, in
part, to repay all but $4,000 of the outstanding balance under the then existing
revolving loan agreement with other banks and under which the Company was then
in default. In connection with the May 1996 refinancing, other banks amended and
restated an existing agreement to provide the Company with a $4 million term
loan (the "Term Loan") in lieu of a like amount of revolving credit debt then
outstanding under the existing agreement. The Term Loan was payable in $200
quarterly increments beginning in June 1997 with the final balance due in May
1999, if not prepaid earlier pursuant to annual prepayments based on excess cash
flow, as defined. The Company prepaid the remaining Term Loan balance in April
1998 and, as a result of the prepayment and the refinancing of the 1996
Revolving Credit Agreement, recorded an after-tax gain of approximately $38 in
the second quarter of 1998 and an after-tax loss of approximately $111 in the
third quarter of 1998, respectively.
31
E. INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES:
- -------------------------------------------------------- ------- ------- -------
2000 1999 1998
- -------------------------------------------------------- ------- ------- -------
Currently payable (recoverable):
Federal .............................................. $(2,257) $ 2,199 $ 2,560
State ................................................ -- 638 690
Foreign sales corporation ............................ 6 18 12
------- ------- -------
(2,251) 2,855 3,262
Deferred:
Federal .............................................. 4,073 (1,630) (719)
State ................................................ 1,379 (264) (108)
------- ------- -------
5,452 (1,894) (827)
- -------------------------------------------------------- ------- ------- -------
Total provision ....................................... $ 3,201 $ 961 $ 2,435
- -------------------------------------------------------- ------- ------- -------
DEFERRED TAX PROVISION (BENEFIT):
- -------------------------------------------------------- ------- ------- -------
2000 1999 1998
- -------------------------------------------------------- ------- ------- -------
Accounts receivable reserves ........................... $ 304 $ (631) $ 148
Deferred compensation .................................. 581 (429) (638)
Inventory capitalization ............................... 226 421 (197)
Postretirement benefits ................................ (248) (77) (122)
Inventory reserves ..................................... 197 (397) 157
Workman's compensation ................................. 38 76 66
Termination costs ...................................... 115 (116) 114
Capital leases ......................................... -- -- 74
Borrowing costs ........................................ -- -- 178
Corporate owned life insurance ......................... (1,097) (1,098) (373)
Depreciation ........................................... (164) (101) (120)
AMT credit carryforwards ............................... -- 38
Other items ............................................ 292 458 (152)
Valuation allowance .................................... 5,208 -- --
- -------------------------------------------------------- ------- ------- -------
$ 5,452 $(1,894) $ (827)
- -------------------------------------------------------- ------- ------- -------
EFFECTIVE INCOME TAX RATE:
- -------------------------------------------------------- ------- ------- -------
2000 1999 1998
- -------------------------------------------------------- ------- ------- -------
Statutory federal income tax rate ...................... (34.0)% 34.0% 34.0%
State income taxes, net of federal tax benefit ......... .4 5.1 5.5
Life insurance ......................................... 3.9 (11.7) (1.5)
Valuation allowance .................................... 56.0 -- --
Foreign tax rate differentials ......................... 7.3 9.0 --
Resolution of federal tax carryback .................... -- (9.6) --
Other items, net ....................................... .8 4.6 1.9
- -------------------------------------------------------- ------- ------- -------
34.4% 31.4% 39.9%
- -------------------------------------------------------- ------- ------- -------
COMPONENTS OF THE NET DEFERRED TAX ASSET AT DECEMBER 31:
- -------------------------------------------------------- ------- ------- -------
2000 1999 1998
- -------------------------------------------------------- ------- ------- -------
Deferred tax assets
Accounts receivable reserves ......................... $ 1,736 $ 2,040 $ 1,410
Deferred compensation ................................ 2,250 2,831 2,402
Inventory capitalization ............................. 1,171 823 1,244
Postretirement benefits .............................. 1,115 867 790
State NOL carryforwards .............................. 365 -- --
Environmental costs .................................. 659 662 662
Inventory reserves ................................... 395 592 195
Workman's compensation ............................... 19 57 133
Termination costs .................................... 188 303 187
Capital leases ....................................... -- -- 87
Other ................................................ 19 308 678
------- ------- -------
Gross deferred asset ................................. 7,917 8,483 7,788
Deferred tax liabilities
Depreciation ......................................... (162) (326) (427)
Corporate owned life insurance ....................... (1,097) (2,194) (3,292)
Valuation allowance ................................. (5,208) -- --
- -------------------------------------------------------- ------- ------- -------
Net deferred tax asset ................................. $ 1,450 $ 5,963 $ 4,069
- -------------------------------------------------------- ------- ------- -------
32
At December 31, 2000, the Company recorded a valuation
allowance on the deferred tax asset in the amount of $5,208 to reduce the asset
to its estimated net realizable value. Based upon the projections for the fiscal
2001 tax loss in which the temporary differences that created the deferred tax
asset are anticipated to reverse, management believes it is more likely than not
that the Company will receive $1,450 from the Internal Revenue Service as a
result of filing a carryback claim in 2002 of federal income taxes paid in 1999.
However, the amount of the deferred tax asset considered realizable could be
adjusted in the future if estimates of taxable loss are revised based on actual
results.
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. 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.
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:
- ----------------------------------------------------- -------------- -----------------
2000 1999
- ----------------------------------------------------- -------------- -----------------
Benefits under 1987 Deferred Compensation
Plan and Postretirement benefits (See Note G) $3,800 $3,499
1993 Deferred Compensation Plan (See Note G) 3,095 4,192
1998 Equity Incentive Plan (See Note H) 0 210
Environmental liabilities (See Note J) 1,588 1,588
Supplemental death benefits 86 120
Other 194 195
Long-term portion of capital leases 58 195
- ----------------------------------------------------- -------------- -----------------
$8,821 $9,999
- ----------------------------------------------------- -------------- -----------------
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 $1,437 and $1,416 as of December
31, 2000 and 1999, respectively. The company did not enter into any new
capitalized leases in 2000, 1999 or 1998.
33
Future minimum lease payments and the present value of the
minimum lease payments as of December 31, 2000 were:
- ---------------------------------------------------------------------
2001.................................................... $150
2002.................................................... 17
--
Subtotal................................................ 167
Imputed interest at 11.0%............................... (9)
- ---------------------------------------------------------------------
Present value of minimum lease payments................. $158
- ---------------------------------------------------------------------
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 $970, $451 and $1,200 in 2000, 1999 and
1998, respectively. At December 31, 2000 and 1999, the Plan held a total of
3,395,586 and 3,263,272 shares, respectively, of the Company's outstanding
stock, of which 3,178,955 and 3,263,272 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. Outstanding
obligations due from the Plan were $286 and $0 in 2000 and 1999, respectively,
and are classified in the balance sheet as deferred employee benefits, a
reduction in stockholder's 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.
34
The following table sets forth reconciliations of the
beginning and ending balances of the postretirement benefits and defined
benefits under the 1987 Deferred Compensation Plan described below:
Postretirement Defined
Benefits Benefits
- -------------------------------------------------------------------------------------------------------------------------------
Change in Benefit Obligation 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at beginning of year: $4,763 $5,399 $2,356 $2,329
Service cost 26 39 0 40
Interest cost 355 338 166 141
Participants' contributions 20 23 0 0
Amendments (125) 0 0 0
Special termination benefit cost 109 0 0 0
Curtailment (7) 0 0 297
Actuarial (gain) loss 460 (575) 72 (121)
Benefits paid (690) (461) (436) (330)
Benefit obligation at end of year $4,911 $4,763 $2,158 $2,356
Change in Plan Assets
Plan assets at beginning of year at fair value $0 $0 $0 $0
Employer contributions 670 438 436 330
Participants' contributions 20 23 0 0
Benefits paid (690) (461) (436) (330)
----- ----- ----- -----
Plan assets at end of year at fair value 0 0 0 0
Funded status $(4,911) $(4,763) $(2,158) $(2,356)
Unrecognized actuarial (gain) loss 1,025 583 72 0
Unrecognized transition obligation 1,446 2,036 0 0
Unrecognized prior service (credit) cost 0 0 0 0
- - - -
Accrued benefit cost (1) $(2,440) $(2,144) $(2,086) $(2,356)
- ------------------------------------------------------------------------------------------------------------------------------
(1) Amounts totaling $726 and $1,001 have been included in accrued employee
compensation as of December 31, 2000 and 1999, 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 7.25%, 7.75% and 6.5% at December 31, 2000,
1999, and 1998, respectively. For measurement purposes, a 9.9% annual rate of
increase in the per capita cost of certain covered health care benefits was
assumed for 2001 through 2004, falling to 5.5% in 2005 and all years thereafter.
Medicare Part B health care benefits were assumed to increase at a rate of 5.5%
for 2001 and all years thereafter.
Net periodic postretirement benefit cost for 2000, 1999 and
1998 included the following components:
POSTRETIREMENT Defined
BENEFITS Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Service cost $26 $ 39 $ 34 $0 $ 40 $110
Interest cost 355 338 349 166 141 177
Expected return on plan assets 0 0 0 0 0 0
Recognized actuarial (gain) loss 11 48 51 0 (1) 134
Amortization of transition obligation 137 156 160 0 (20) (20)
Amortization of prior service (credit) cost 0 0 0 0 (18) 0
- - - - ---- -
Net periodic benefit costs included in selling and
administrative expenses $529 $581 $594 $166 $142 $401
(Gain) loss recognized due to curtailment 328 0 0 0 (169) 0
Special termination benefit cost 109 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total plan cost (income) $966 $581 $594 $166 $(27) $401
- ------------------------------------------------------------------------------------------------------------------------------------
35
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 benefits is 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 sixty with ten years of
service. Proceeds from these contracts are expected to be adequate to fund the
Company's obligations although there are likely to be differences in the timing
of cash flows over the life of the program. The cost of these contracts is
included in the annual 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
$53, respectively, while a one-percentage point increase would increase the
total of service and interest cost by $3 and the postretirement benefit
obligation by $62.
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 following seven years after the year of original deferral. 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 were purchased on the
lives of the participants and on certain other employees with annual net
carrying cost of approximately $300 per year. 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 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 $3,637 and $4,495 at December 31, 2000 and 1999, respectively, of
which $542 and $303, respectively, have been classified in accrued employee
compensation. The remaining balances of $3,095 and $4,192, 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 $111, $330, and
$271, in 2000, 1999 and 1998, 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 $8,920 and $10,701, at December 31, 2000 and 1999, respectively,
which is included in other assets, net of policy loans aggregating approximately
$2,348 and $3,132, 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 $185, $285 and $1,997 in 2000, 1999 and 1998,
36
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%, 6.3% and
7.7% at December 31, 2000, 1999 and 1998, 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. Options to purchase 5,000 shares of Common Stock were
granted under this plan in each of 2000, 1999 and 1998. At December 31, 2000, a
total of 18,333 shares of Common Stock were reserved for future grants under the
directors' plan.
The following table summarizes stock option activity for the
years 1998 through 2000:
- ----------------------- ---------------------------- --------------------------
Weighted Average
Option Shares Exercise Price
- ----------------------- ---------------------------- --------------------------
Outstanding at
December 31, 1997 323,600 $2.67
Exercised (14,966) 2.82
Forfeited (3,467) 2.82
Expired
Granted 5,000 3.84
Outstanding at -----
December 31, 1998 310,167 2.70
Exercised (5,000) 2.82
Forfeited (67,067) 2.13
Expired (3,333) 3.48
Granted 5,000 3.66
OUTSTANDING AT -----
DECEMBER 31, 1999 239,767 $2.85
EXERCISED
FORFEITED (12,800) 3.03
EXPIRED
GRANTED 5,000 2.44
OUTSTANDING AT -----
DECEMBER 31, 2000 231,967 $2.83
- ----------------------- ---------------------------- --------------------------
For options granted in 2000, 1999 and 1998, the estimated
weighted average fair value, assuming no dividends, was approximately $2.83,
$2.82 and $2.01, respectively, using a risk-free rate of 6.5%, and an expected
volatility of .99 in each year, and expected lives of 5, 5 and 10 years in 2000,
1999 and 1998, respectively. Pro forma net income (loss) and pro forma net
income (loss) per share for options granted using the fair value method was
$(12,003) and $(2.17) per share in 2000, $2,378 and $.43 per share in 1999, and
$3,627 and $.66 per share in 1998.
Options outstanding as of December 31,2000 were as follows:
------------ ------------ ------------- ----------- ------------- ------------
Weighted Weighted Weighted
Exercise Shares Average Average Number Average
Price Outstanding Life (Years) Price Exercisable Price
------------ ------------ ------------- ----------- ------------- ------------
$2.41-$3.84 25,000 1.45 $2.98 25,000 $2.98
$2.81 206,967 .75 2.81 206,967 2.81
Total 231,967 .83 $2.83 231,967 $2.83
37
At December 31, 2000 and 1999 there were 231,967 and 239,767
exercisable options, respectively, and the weighted-average exercise prices were
$2.85 and $2.73, respectively.
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. No awards were
granted by the Board in 2000, 1999 or 1998. Compensation expense of $350 was
recorded as of December 31, 1998 with a corresponding liability of $210 and an
increase to additional paid-in-capital of $140, in connection with the 1998
Plan. The Company reversed the liability set-up in 1998 and decreased additional
paid-in-capital by $140 in 2000. None of the participants in the 1998 Plan are
entitled to receive any amounts, as the cumulative measurements for the
three-year period were not met.
I. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of net income per share:
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Numerator:
Net income (loss) $(11,995) $2,387 $3,662
Denominator: --------- ------ ------
Weighted average common shares outstanding 5,522,513 5,522,305 5,511,287
Effect of excluding unallocated shares held in ESOP - - -
- - -
Shares used in computing net income per common share 5,522,513 5,522,305 5,511,287
Effect of dilutive options - 38,981 70,425
- ------ ------
Shares used in computing net income per common share assuming dilution 5,522,513 5,561,286 5,581,712
Net income (loss) per common share $(2.17) $ .43 $ .66
Net income (loss) per common share assuming dilution $(2.17) $ .43 $ .66
- ------------------------------------------------------------------------------------------------------------------------
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, 2000, 1999 and 1998, 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 noncancelable long-term
operating leases. Certain of the leases provide renewal options ranging from one
to ten years and escalation clauses covering increases in various costs. Total
rental expenses amounted to $3,431, $3,354 and $3,298, in 2000, 1999 and 1998,
respectively.
38
Future minimum lease payments under noncancelable operating leases as of
December 31, 2000 are as follows:
------------------------------------------------------------------
2001............................................. $2,363
2002............................................. 2,074
2003............................................. 1,658
2004............................................. 1,359
2005............................................. 1,338
Thereafter....................................... 5,564
-------------------------------------------------------------------
Total minimum payments........................... $14,356
-------------------------------------------------------------------
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", "Pierre Cardin" (men's), and "Anne Klein", "Anne Klein II",
"DKNY", and "Guess?" (women's) collectively may be considered material to the
Company's business. The Company is obligated to pay minimum royalties under
certain license agreements as follows: 2001- $6,193; 2002- $6,050; 2003 -
$3,268; 2004-$1,260 and 2005- $350. 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 certain license agreements which that
firm introduced to the Company. Management believes that the Company's license
obligations have been adequately reflected in the accompanying financial
statements.
On June 7, 1990 the Company received notice from the United
States Environmental Protection Agency ("EPA") that it, along with fifteen
others, had been identified as a Potentially Responsible Party ("PRP") in
connection with the release of hazardous substances at a Superfund Site located
in Massachusetts. This notice does not constitute the commencement of a
proceeding against the Company or necessarily indicate that a proceeding against
the Company is contemplated. The Company, along with six other PRP's, has
voluntarily entered into an Administrative Order pursuant to which, inter alia,
they have undertaken to conduct a remedial investigation/feasibility study
("RI/FS") with respect to the alleged contamination at the site. The Company's
share of costs for the RI/FS is being allocated on an interim basis at
approximately 12.5%. This Superfund site is adjacent to a municipal landfill
that is in the process of being closed under Massachusetts law. 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, 2000 and 1999 the Company had
accrued approximately $1,222 and $1,223, 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.
39
Estimates of the costs of remediation range from approximately
$2.8 million for natural attenuation to approximately $7.8 million for other
remediation. The Company's share is approximately 8% of approximately 75% of the
costs. At December 31, 2000 and 1999 the Company had accrued approximately 446
and $453 respectively, in connection with this site based on the results of
tests conducted in 2000 and 1999. Management believes that this site will not
have a material adverse effect on the Company's operating results or financial
condition 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 $80 and $88 included in Other liabilities in 2000 and 1999,
respectively. These amounts have not been discounted. Management believes that
the accompanying financial statements include adequate provision for
environmental exposures.
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.
As described above, 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 effective no later than the quarter ended December
31, 2000. SAB No. 101 clarifies the Securities and Exchange Commission's views
regarding recognition of revenue. The Company has adopted SAB No. 101 in the
fourth quarter of 2000. The adoption of SAB 101 has resulted in the
re-classification 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 SAB 101 on the Company's financial statements was to reduce
both Net Sales and Selling and Administrative expense by $9,841,000, $8,002,000,
and $7,061,000 for 2000, 1999, and 1998 respectively. The following table
summarizes the various promotional expenses incurred by the Company:
- ------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------
Cooperative advertising ...... $1,545 $ 910 $1,355
Displays ..................... 1,390 1,314 1,227
National advertising and other 2,779 1,620 1,156
------ ------ ------
Total ................ $5,714 $3,844 $3,738
------ ------ ------
L. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The men's and women's accessories businesses have pronounced
differences including the frequency of markets, the degree of fashion
orientation in the products and, at the retail level, separate departments with
separate buying structures. Management considers meeting the specific demands of
each of these marketplaces as the most important factor in managing the
Company's business and in developing appropriate reporting of results. The
Company's products are sold principally domestically through department
40
stores and, to a lesser extent, through specialty stores and mass merchandisers.
The Company and its corresponding customer relationships are organized along
men's and women's lines. As a result, the Company has two reportable segments,
Men's Accessories consisting of belts, wallets and other small leather goods,
suspenders and jewelry and Women's Accessories consisting of jewelry products.
Management measures segment profit or loss for each segment based on income or
loss before income taxes utilizing the accounting policies consistent in all
material respects with those described in Note B. Reportable segment assets
consist of inventory. No intersegment revenue is recorded. Reportable segment
assets are transferred to Other, which includes the Company's outlet stores, at
carrying cost.
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
2000 MEN'S WOMEN'S OTHER TOTAL
---- ----- ------- ----- -----
Revenue from external customers $95,769 $39,227 $5,880 $140,876
Interest Expense, net 1,775 539 70 2,384
Depreciation Expense 817 528 60 1,405
Restructuring expenses 1,274 479 288 2,041
Segment loss (1,080) (7,686) (28) (8,794)
Other noncash item:
(Recoveries) provision for bad debts (41) (19) 0 (60)
Segment Assets 22,915 7,739 1,236 31,890
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
1999 MEN'S WOMEN'S OTHER TOTAL
---- ----- ------- ----- -----
Revenue from external customers $98,676 $50,070 $6,071 $154,817
Interest Expense, net 1,076 633 81 1,790
Depreciation Expense 963 554 48 1,565
Segment Profit (loss) 5,252 (2,313) 409 3,348
Other noncash item:
(Recoveries) provision for bad debts 203 101 304
Segment Assets 23,223 11,390 1,780 36,393
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
1998 MEN'S WOMEN'S OTHER TOTAL
---- ----- ------- ----- -----
Revenue from external customers $91,125 $47,142 $6,442 $144,709
Interest Expense, net 1,005 592 75 1,672
Depreciation Expense 1,129 547 60 1,736
Segment Profit 4,746 948 403 6,097
Other noncash item:
(Recoveries) provision for bad debts (183) 12 (171)
Segment Assets 26,279 13,242 1,663 41,184
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
RECONCILIATION OF ASSETS
- ------------------------
Reportable segment assets $31,890 $36,393 $39,521
All other Assets 30,607 38,547 33,448
------ ------ ------
Total consolidated assets $62,497 $74,940 $72,969
- ------------------------------------------------- -------------------------------------------- ------------ -------------------
Sales to the Company's two largest customers accounted for
approximately 18% and 16% of consolidated net sales in 2000, 17% and 14% of
consolidated net sales in 1999, and 16% and 15% of consolidated net sales in
1998, respectively. Each of these customers accounted for in excess of 10% of
net sales in each of the Company's reportable segments in 2000. In addition, the
Company's third largest customer accounted for approximately 11% and 10% of
consolidated net sales in 2000 and 1998, respectively. Exports to foreign
countries accounted for approximately 5% of consolidated net sales in each of
the Company's fiscal years ended December 31, 2000, 1999, and 1998,
respectively.
41
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.
2000 FIRST SECOND THIRD FOURTH
- ---- ----- ------ ----- ------
NET SALES $33,867 $32,839 $36,059 $38,111
GROSS PROFIT 10,783 11,141 11,263 13,350
NET (LOSS) (1,599) (1,531) (1,471) (7,394)
PER SHARE $ (.29) $ (.28) $ (.27) $ (1.34)
PER SHARE ASSUMING DILUTION $ (.29) $ (.28) $ (.27) $ (1.34)
1999 First Second Third Fourth
- ---- ----- ------ ----- ------
Net sales $35,573 $31,606 $39,119 $48,519
Gross profit 11,943 10,923 14,440 17,092
Net income (loss) $(66) $ (565) $ 673 $ 2,345
Per share $ (.01) $ (.10) $ .12 $ .42
Per share assuming dilution $ (.01) $ (.10) $ .12 $ .42
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
42
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, 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 waived those
requirements as of and for the quarter ended December 31, 2000 through a Bank
Waiver dated April 16, 2001.
The Company has 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 million to $1.5 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 has 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 million.
The Company does not believe that the imposition of such reserves will have a
material affect on its liquidity.
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 has 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 has determined that Joyas
43
y Cueros cannot 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 costume
jewelry from a variety of domestic and foreign vendors and anticipates that it
will be able to re-source the items manufactured by Joyas with no disruption in
the flow of merchandise. In connection with the reduction in its operations,
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 $103,000 during the
first quarter of 2001 in connection with the termination of its manufacturing
workforce. Management anticipates that it will complete the sale and liquidation
of Joyas y Cueros' assets by the second quarter of 2001.
On May 2, 2001, the Company completed the sale and lease-back
of its manufacturing facility in South Norwalk, Connecticut. The manufacturing
facility was sold for approximately $6.1 million, reduced by an escrow payment
of $685,400 for roof repairs and general maintenance over the life of the lease.
The Company contemporaneously leased back the facility from the purchaser for a
period of 10 years. Under the terms of the lease agreement, the Company is
responsible for all taxes and insurance on the manufacturing facility.
The Company announced that it 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 expects
that its shares will now be traded in the over-the-counter market. Because the
Company currently is not widely covered by Wall Street analysts and historically
has not relied on the public equity markets for external funding, it does not
anticipate any material adverse financial consequences resulting from a
delisting from the Nasdaq SmallCap Market.
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.
44
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Swank, Inc
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) on page 56, present fairly, in all material
respects, the financial position of Swank, Inc. and its subsidiaries at December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14 (a) (2) on page 54, presents 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 schedule 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,
2000 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 2, 2001 execept for the last paragraph of
Note O for which the date is June 8, 2001
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
-----------------------------------------------------------
None
45
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:
Mark Abramowitz, who is 64 years old, has been a partner in
the law firm of Jenkens & Gilchrist Parker Chapin LLP (formerly Parker Chapin
LLP) for more than the past five years. The firm is general counsel to the
Company. Mr. Abramowitz became a director of the Company in 1987.
John J. Macht, who is 64 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 79 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, 2000, 1999 and 1998 concerning the
compensation of the Company's chief executive officer and each of its four other
most highly compensated executive officers (the "Named Officers"):
46
ANNUAL COMPENSATION
--------------------------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND SALARY BONUS COMPENSATION COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (6) (8)(9)
---------------------- --------------- ---------------- -------------- ----------------- -----------------
Marshall Tulin, 2000 $ 360,000 $ --- $5,410
Chairman of 1999 360,000 10,000 210
the Board (1) 1998 360,000 30,000 88
John Tulin, 2000 $ 410,000 $ --- $7,332
President, Chief 1999 410,000 60,000 2,212
Executive 1998 355,833 150,000 2,008
Officer (2)
Eric P. Luft, 2000 $ 180,000 $ 213,395 $7,332
Senior Vice 1999 142,500 245,311 2,212
President and 1998 130,000 272,412 2,008
Director (3)
James Tulin, 2000 $ 274,583 $ --- $ 39,981 (7) $5,412
Senior Vice 1999 260,000 50,000 38,840 (7) 292
President (4) 1998 250,000 75,000 42,355 (7) 88
W. Barry Heuser, 2000 $ 225,000 $ --- $6,507
Vice President - 1999 225,000 15,000 2,119
Belt Division (5) 1998 213,417 48,000 2,008
---------------------------------------------------------------------------
(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 $213,315, $217,811 and
$200,412 for the years 2000, 1999 and 1998, 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) Mr. Heuser is a party to an employment agreement with the Company which is
described below under the caption "Employment Contracts and Severance
Agreements".
47
(6) Except as set forth for James Tulin, perquisites and other personal benefits
during 2000, 1999 and 1998 did not exceed the lesser of $50,000 or 10% of
reported annual salary and bonus for any of the Named Officers.
(7) These amounts include automobile lease payments of $19,402 in 2000, $18,778
in 1999 and $19,582 in 1998 and a travel allowance of $10,800 in each of 2000,
1999 and 1998.
(8) The amounts set forth for 2000, 1999 and 1998 represent allocations under
certain benefit plans of the Company as follows:
RETIREMENT PLAN DEFERRED
ACCOUNTS COMPENSATION PLAN TOTAL
------------------------ -------------------------- -----
2000
- ----
Marshall Tulin $ 5,410 $ --- $ 5,410
John Tulin 5,412 1,920 7,332
Eric P. Luft 5,412 1,920 7,332
James Tulin 5,412 --- 5,412
W. Barry Heuser 4,587 1,920 6,507
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
1998
- ----
Marshall Tulin $ 88 $ --- $ 88
John Tulin 88 1,920 2,008
Eric P. Luft 88 1,920 2,008
James Tulin 88 --- 88
W. Barry Heuser 88 1,920 2,008
(9) Excludes long-term performance awards granted in 1998 to Messrs. John Tulin,
Eric P. Luft and James Tulin under the Company's 1998 Equity Incentive
Compensation Plan (the "1998 Plan"). The awards, which were payable 60% in cash
and 40% in shares of the Company's Common Stock, would have become payable if
the Company had achieved certain levels of Cumulative Pretax Income (as defined
in the 1998 Plan) for the fiscal years ended December 31, 1998, 1999 and 2000.
Less than the maximum amount payable under the awards would have been payable if
the Company had reached certain percentages (at or above 70%) of the maximum
Cumulative Pretax Income goal. Cumulative Pretax Income is as set forth on the
consolidated statement of operations of the Company contained in its audited
financial statements for those years as certified by the Company's independent
accounting firm. Under the terms of the awards, the maximum aggregate amount
that would have been payable to Messrs. John Tulin, Eric P. Luft and James Tulin
was $840,000, $540,000 and $432,000, respectively. None of the foregoing
individuals are entitled to receive any amounts under the long-term performance
awards.
48
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
VALUE TABLE.
During the Company's fiscal year ended December 31, 2000, no stock
options were granted to or 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 such Named Officers as of the end of fiscal 2000. The closing
price of a share of Common Stock of the Company on December 29, 2000 (the last
day during fiscal 2000 on which the Company's Common Stock traded on the Nasdaq
SmallCap Market) was $.625.
2000 FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ---- ------------------------- --------------------------
Marshall Tulin 13,333/ 0 $ 0/ 0
John Tulin 13,333/ 0 $ 0/ 0
Eric P. Luft 5,000/ 0 $ 0/ 0
James Tulin 11,667/ 0 $ 0/ 0
W. Barry Heuser 6,667/ 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 Non-Employee Director Stock Option Plan (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. Following the Company's 2000 Annual Meeting, Messrs. Abramowitz, Macht
and Vise were each granted an option to purchase 5,000 shares of Common Stock at
an exercise price per share of $.813, the fair market value per share of Common
Stock on the date of grant (1,667 shares of Common Stock at an exercise price
per share of $2.44, after taking into account the one-for-three reverse stock
split in August 2000).
49
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 30 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
$360,000 per year ($300,000 per year, commencing February 1, 2001). The Company
has also entered into an employment agreement with John Tulin, which terminates
on December 31, 2001. Pursuant to such agreement, Mr. Tulin is employed as Chief
Executive Officer and receives a base salary of $410,000 per year. The Company
has also entered into an employment agreement with James Tulin, which terminates
on December 31, 2001. Pursuant to such agreement, Mr. Tulin is employed as
Senior Vice President and receives a base salary of $285,000 per year.
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, which expire on 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 even 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).
50
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 2000, 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 2000, the Stock
Option Committee consisted of John Macht and Raymond Vise.
During 2000, Ronald Vise, the son of Raymond Vise was employed
by the Company as a commissioned salesman. He received compensation of $172,208
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 $82,764 during 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
OWNERSHIP OF VOTING SECURITIES
The following table sets forth information at April 9, 2001
with respect to each person (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who is
known to the Company to be the beneficial owner of more than 5% of the Company's
Common Stock:
51
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP (1) CLASS
------------------- ------------- -----
The New Swank, Inc. 3,342,353 (2) (3) 60.5%
Retirement Plan
90 Park Avenue
New York, NY 10016
Marshall Tulin 1,807,792 (4) (5) 33.9 %
90 Park Avenue
New York, NY 10016
John Tulin 1,667,727 (4) (6) 31.3 %
90 Park Avenue
New York, NY 10016
Raymond Vise 1,585,770 (4) (7) 28.7 %
90 Park Avenue
New York, NY 10016
-------------------
(1) Reflects adjustment for one-for-three reverse stock split in August
2000.
(2) This amount includes (a) 1,767,050 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
8,819 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 1,240,063 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. 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 326,420 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) 8,819 shares of
Common Stock allocated to the accounts of former employees but voted by the
trustees (see footnote 2 above), (b) 1,240,063 shares held in accounts as to
which the trustees have sole voting power as to certain matters (see
footnote 3 above) and (c) 326,420 shares held in accounts
52
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
13,333 shares which Mr. Tulin has the right to acquire within 60 days
through the exercise of stock options granted under the Company's 1987
Incentive Stock Option Plan (the "1987 Plan") and 1,341 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 13,333 shares which Mr.
Tulin has the right to acquire within 60 days through the exercise of stock
options granted under the 1987 Plan and 25,946 shares allocated to his
accounts under the Retirement Plan.
(7) This amount includes 8,333 shares which Mr. Vise has the right to
acquire within 60 days through the exercise of stock options granted under
the 1994 Plan.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information at April 9, 2001 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 (8 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.
PERCENT
AMOUNT AND NATURE OF OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS
- ------------------------ ------------------------- -----
Mark Abramowitz 9,200 (2) *
John J. Macht 8,333 (3) *
James E. Tulin 36,711 (4) *
John Tulin 1,667,727 (5) 31.3 %
Marshall Tulin 1,807,792 (6) 33.9 %
Raymond Vise 1,585,770 (7) 28.7 %
Eric P. Luft 24,339 (8) *
W. Barry Heuser 14,241 (9) *
All directors and officers as 2,104,634 (10) 37.4 %
a group (8 persons)
-------------------------
* Less than one (1%) percent.
(1) Reflects adjustment for one-for-three reverse stock split in August
2000.
53
(2) Includes 8,333 shares which Mr. Abramowitz has the right to acquire
within 60 days through the exercise of stock options granted under the 1994
Plan.
(3) Includes 8,333 shares which Mr. Macht has the right to acquire within 60
days through the exercise of stock options under the 1994 Plan.
(4) Includes 11,667 shares which Mr. Tulin has the right to acquire within
60 days through the exercise of stock options granted under the 1987 Plan,
an aggregate of 142 shares held by his children and an aggregate of 24,902
shares of Common Stock allocated to his accounts under the Retirement Plan.
(5) Includes the shares referred to in footnotes 4 and 6 to the first table
above under the caption "Ownership of Voting Securities."
(6) Includes the shares referred to in footnotes 4 and 5 to the first table
above under the caption "Ownership of Voting Securities."
(7) Includes the shares referred to in footnote 4 and 7 to the first table
above under the caption "Ownership of Voting Securities."
(8) Includes 5,000 shares which Mr. Luft has the right to acquire within 60
days through the exercise of stock options granted under the 1987 Plan and
an aggregate of 19,339 shares of Common Stock allocated to his accounts
under the Retirement Plan.
(9) Includes 6,667 shares which Mr. Heuser has the right to acquire within
60 days through the exercise of stock options granted under the 1987 Plan
and an aggregate of 7,574 shares of Common Stock allocated to his accounts
under the Retirement Plan.
(10) Reference is made to footnotes (1) through (7) above. This amount also
includes 103,333 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 1987 Plan and 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 the uncle of
John Tulin and James Tulin) was employed by the Company during 2000. 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 2000 amounted to
$90,000. Christine Tulin (who is the daughter of John Tulin) was employed by the
Company during 2000. Christine Tulin is responsible for advertising and
promotion of women's
54
jewelry. Aggregated compensation paid to Christine Tulin by the Company for
services rendered during 2000 amounted to $67,000.
55
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--December 31, 2000 and
1999
Consolidated Statements of Operations--Years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders'
Equity--Years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows--Years ended
December 31, 2000, 1999 and 1998
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 herewith in response to Item
14(d) of Part IV of this Annual Report:
Report of Independent Accountants on Financial
Statement Schedule
Financial Statement Schedule for the years ended
December 31, 2000, 1999 and 1998.
Schedule II. Valuation and Qualifying Accounts
56
(b) Reports on Form 8-K
-------------------
No current report on Form 8-K was filed during the fiscal
quarter ended December 31, 2000.
(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. 001-05354, is incorporated herein by reference.)
3.02 By-laws of the Company, as amended to date. (Exhibit 3.02 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No.
1-5354, is incorporated herein by reference.)
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.)
57
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.*
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.*
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.)+
58
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.)+
10.03 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
59
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.)+
10.04 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 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.)
10.10 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.)+
60
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
61
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.)+
10.14 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.)+
62
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.)+
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.
63
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: June 12, 2001 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 President and Director
- --------------------------- (principal executive
John A. Tulin officer) June 12, 2001
/s/ Jerold R. Kassner Senior Vice President,
- --------------------------- Chief Financial Officer,
Jerold R. Kassner Treasurer and Secretary June 12, 2001
(principal financial and
accounting officer)
/s/ Mark Abramowitz Director June 12, 2001
- ---------------------------
Mark Abramowitz
/s/ Eric P. Luft Director June 12, 2001
- ---------------------------
Eric P. Luft
/s/ John J. Macht Director June 12, 2001
- ----------------------------
John J. Macht
64
Signature Title Date
--------- ----- ----
/s/ James E. Tulin Director June 12, 2001
- ---------------------------
James E. Tulin
/s/ Marshall Tulin Director June 12, 2001
- ---------------------------
Marshall Tulin
/s/ Raymond Vise Director June 12, 2001
- ---------------------------
Raymond Vise
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, 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
- ---------------------------------- ======== ========== === ========= ==========
FOR THE YEAR ENDED DECEMBER 31, 1998
RESERVE FOR RECEIVABLES
- -----------------------
Allowance for doubtful accounts $1,500,000 $ (171,000) (G) $(171,000) (A) (I) $1,500,000
Allowance for cash discounts 227,000 1,381,000 (H) 1,378,000 (B) 230,000
Allowance for customer returns 5,213,000 7,033,000 (F) 7,910,000 (C) 4,336,000
Allowance for cooperative advertising 456,000 1,355,000 (G) 1,211,000 (D) 600,000
Allowance for in-store markdowns 2,310,000 7,059,000 (G) 6,994,000 (E) 2,375,000
--------- --------- --- --------- ---- ---------
TOTAL 9,706,000 16,657,000 17,322,000 9,041,000
========= ========== ========== =========
RESERVE FOR INVENTORY OBSOLESCENCE $874,000 0 (J) $389,000 (K) $485,000
- ---------------------------------- ======== = === ========= ========
(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) Accounts receivable recoveries in excess of charge-offs.
(J) Located in cost of sales.
(K) Inventory charged-off.
65
-------------
Exhibit No. 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. 001-05354, is incorporated herein by
reference.)
3.02 By-laws of the Company, as amended to date. (Exhibit 3.02 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 1-5354, is incorporated
herein by reference.)
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.*
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.*
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.)+
Exhibit No. Description
- ----------- -----------
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.)+
10.02 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.)+
10.03 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.)+
Exhibit No. Description
- ----------- -----------
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 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.)
10.10 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.)+
Exhibit No. Description
- ----------- -----------
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.)+
10.14 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.)+
Exhibit No. Description
- ----------- -----------
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.)+
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.