Swank, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.01 - CERTIFICATION OF JOHN TULIN - Swank, Inc.	ex31_01-f10q03312011.htm
EX-31.02 - CERTIFICATION OF JEROLD R. KASSNER - Swank, Inc.	ex31_02-f10q03312011.htm
EX-32.01 - CERTIFICATION OF JOHN TULIN AND JEROLD R. KASSNER - Swank, Inc.	ex32_01-f10q03312011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

-----------------------

(Mark One)
[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended March 31, 2011

	OR

[ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from__________ to__________

Commission File Number 1-5354

Swank, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		04-1886990 (IRS Employer Identification Number)

90 Park Avenue New York, NY (Address of principal executive offices)		10016 (Zip code)

(212) 867-2600

(Registrant's telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Item 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

	Yes			No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ___ Accelerated filer ___

Non-accelerated filer ___ Smaller reporting company X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

	Yes			No	X

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

Title of Class	Shares Outstanding on April 30, 2011
Common Stock, $.10 par value	5,614,616

SWANK, INC.

INDEX

		Page No.
Part I. Financial Information

Item 1.	Condensed Financial Statements and Related Notes	3 – 8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8 – 12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13

Item 4.	Controls and Procedures	13


Part II. Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14

Item 6.	Exhibits	14

Signatures		15

Exhibit Index		16

Part I. Financial Information

Item 1. Financial Statements

SWANK, INC.

CONDENSED BALANCE SHEETS

(Dollars in thousands except share and per share data)

		March 31, 2011		December 31, 2010
			(Unaudited)
	ASSETS
Current:
Cash and cash equivalents			$ 339		$ 3,235
Accounts receivable, less allowances
of $6,000 and $7,798, respectively			16,958		20,214
Inventories, net:
Work in process		808		773
Finished goods		23,848		21,848
			24,656		22,621
Deferred taxes, current			2,713		2,713
Prepaid expenses and other current assets			1,589		1,150

Total current assets			46,255		49,933

Property, plant and equipment, net of
accumulated depreciation			1,066		1,132
Deferred taxes, noncurrent			2,118		2,118
Other assets			2,855		2,905

Total assets			$ 52,294		$ 56,088

	LIABILITIES
Current:
Note payable to bank			$ 4,830		$ 5,287
Current portion of long-term obligations			703		711
Accounts payable			3,175		4,151
Accrued employee compensation			711		1,748
Accrued royalties			963		1,583
Income taxes payable			114		761
Other current liabilities			1,344		1,572

Total current liabilities			11,840		15,813

Long-term obligations			6,683		6,584

Total liabilities			18,523		22,397

	STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00:
Authorized - 300,000 shares			-		-
Common stock, par value $.10:
Authorized - 43,000,000 shares
Issued -- 6,429,095 shares			642		642
Capital in excess of par value			2,669		2,605
Retained earnings			33,462		33,430
Accumulated other comprehensive (loss), net of tax			(696)		(696)
Treasury stock, at cost, 805,607 and 800,350 shares, respectively			(2,306)		(2,290)

Total stockholders' equity			33,771		33,691

Total liabilities and stockholders' equity			$ 52,294		$ 56,088

The accompanying notes are an integral part of the condensed financial statements

SWANK, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Dollars in thousands except share and per share data)

---------------------------------

	2011	2010

Net sales	$ 26,084	$ 25,655

Cost of goods sold	17,855	17,390

Costs associated with termination of Style 365 agreement	-	1,492

Total cost of sales	17,855	18,882

Gross profit	8,229	6,773

Selling and administrative expenses	8,153	8,350

Income (loss) from operations	76	(1,577)

Interest expense	42	62

Income (loss) from operations before income taxes	34	(1,639)

Provision (benefit) for income taxes	2	(1,182)

Net income (loss)	$ 32	$ (457)

Share and per share information:
Basic net income (loss) per weighted average common share outstanding	$ .01	$ (.08)
Basic weighted average common shares outstanding	5,623,511	5,669,735
Diluted net income (loss) per weighted average common share outstanding	$ .01	$ (.08)
Diluted weighted average common shares outstanding	5,623,511	5,669,735

The accompanying notes are an integral part of the condensed financial statements.

SWANK, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREEMONTHS ENDED MARCH 31, 2011 AND 2010

(Dollars in thousands)

--------------

	2011		2010
Cash flows from operating activities:

Net income (loss)		$ 32		$ (457)
Adjustments to reconcile net income (loss) to net cash (used in) operations:
Depreciation and amortization		94		101
(Recoveries) provision for bad debts		(126)		98
Stock-based compensation expense		63		63

Changes in assets and liabilities:
Decrease (increase) in accounts receivable		3,382		(2,098)
(Increase) decrease in inventories		(2,036)		1,732
(Increase) in prepaid and other assets		(374)		(1,503)
(Decrease) in accounts payable		(976)		(4,356)
(Decrease) in accrued royalties		(621)		(321)
(Decrease) in all other current liabilities		(1,918)		(1,556)
Increase in long-term obligations		99		114
Net cash (used in) operations		(2,381)		(8,183)

Cash flows from investing activities:
Capital expenditures		(21)		(115)
Premiums on life insurance		(20)		(20)
Net cash (used in) investing activities		(41)		(135)

Cash flows from financing activities:
Borrowing under revolving credit agreements		11,316		20,798
Payments of revolving credit obligations		(11,774)		(12,908)
Treasury stock repurchased		(16)		-
Net cash (used in) provided by financing activities		(474)		7,890

Net (decrease) in cash and cash equivalents		(2,896)		(428)

Cash and cash equivalents at beginning of period		3,235		571

Cash and cash equivalents at end of period		$ 339		$ 143

Cash paid during the three months for:
Interest		$ 42		$ 62
Taxes		$ 958		$ 846

Non-cash transactions during the period:
Issuance of common stock in lieu of cash compensation		$ -		$ 30

The accompanying notes are an integral part of the condensed financial statements.

SWANK, INC.

Notes to Condensed Financial Statements (Unaudited)

(1)

Basis of Presentation. The unaudited information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to present a fair statement of the results for the periods ended March 31, 2011 and 2010. The financial information contained herein represents condensed financial data and, therefore, does not include all footnote disclosures required to be included in financial statements prepared in conformity with generally accepted accounting principles. Footnote information was included in the financial statements included in the Company’s 2010 Annual Report on Form 10-K. The condensed financial data included herein should be read in conjunction with the information in the Annual Report. The results of operations for the three months ended March 31, 2011 may not be indicative of the results that may be expected for the year ended December 31, 2011 or any other period.

(2)	Net income (loss) per Share. The following table sets forth the computation of the net income (loss) per share for the periods ended March 31, 2011 and 2010 (in thousands, except for share and per share data):

		Quarter
		Ended March 31,
	2011		2010
Numerator:
Net income (loss)	$ 32		$ (457)
Denominator:
Shares used in computing basic net income (loss) per weighted average common share outstanding	5,623,511		5,669,735
Effect of dilutive options	-		-
Shares used in computing net income (loss) per weighted average common share outstanding assuming dilution	5,623,511		5,669,735

Basic and fully diluted net income (loss) per weighted average common share outstanding	$ .01		$ (.08)

As of March 31, 2011 and 2010, options to purchase 375,000 shares and 376,667 shares, respectively, were outstanding but not included in the weighted average common share calculation as the effect would have been anti-dilutive.

(3)	Segment Information. We presently have one reportable segment, men's and women’s accessories, consisting of costume jewelry, belts and suspenders and personal leather goods.

(4)

Stock Options. In April 1998, our 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 permitted our Board of Directors 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. We granted options for 625,000 shares under the 1998 Plan in 2001. These shares vested immediately.

During the first quarter of 2008, we granted options for the remaining 375,000 shares under the 1998 Plan to certain of our key executives. Of the 375,000 option shares, 260,000 shares were granted at an exercise price equal to the fair market price on the date of the grant of $5.05 per share. The remaining 115,000 shares, which were issued to participants owning greater than 10% of the Company’s outstanding voting stock, were issued at an exercise price of 110% of the fair market value at the date of the grant, or $5.56 per share. The options expire five years from the date of grant and vest 25% on each of the first four anniversary dates of the grant. The fair value of the option grant was estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility was estimated using the Company’s historical volatility, calculated on a trailing 39-month basis. The expected term of the options is four years, based on the simplified method of calculating expected life pursuant to ASC 718-10 (formerly SFAS 123(R) and Staff Accounting Bulletin No. 107), “Compensation – Stock Compensation.” The risk-free rate of 2.73% is based upon the yield of a zero-coupon U.S. Treasury Note with a maturity date close to the expiration date of the expected term of the grant. ASC 718-10 requires the Company to reflect the benefits of tax deductions in excess of recognized compensation cost to be reported as both a financing cash inflow and an operating cash outflow. The

Company has recognized no such tax benefits to date. The 1998 Plan expired by its terms in 2008, and no further awards may be granted. All options under the 1998 Plan have either been exercised or expired by their respective terms.

There were no stock options exercised and the Company did not recognize any related tax benefits during the three months ended March 31, 2011 or 2010. During each of the three months ended March 31, 2011 and 2010, we recognized $63,000 in compensation expense related to the 2008 grant. As of March 31, 2011 and 2010, there was $232,000 and $486,000, respectively, in total unrecognized compensation cost related to outstanding options granted after the adoption of ASC 718-10 that is expected to be recognized over the remaining vesting period of the grant.

Option activity under the stock-based compensation plans during the three months ended March 31, 2011 is summarized below:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands) *
Outstanding at December 31, 2010		375,000		$ 5.21		2.16		$ -
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited/ Expired		-		-		-		-
Outstanding at March 31, 2011		375,000		$ 5.21		1.92		$ -


Vested and Exercisable at March 31, 2011		281,250		$ 5.21		1.92		$ -

* The aggregate intrinsic value on this table was calculated based on the positive difference, if any, between the trading price of our common stock on March 31, 2011 and the exercise price of the underlying options.

The above table reflects the 375,000 option shares issued under the 1998 Plan.

During 2008, our stockholders approved the Swank, Inc. 2008 Stock Incentive Plan (the “2008 Plan”) to replace the 1998 Plan that had expired by its terms. The 2008 Plan permits our Board of Directors 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. During the three months ended March 31, 2010 we granted an aggregate stock award of 10,306 shares (net of shares withheld in connection with income tax and other withholdings), respectively, to certain key employees in lieu of cash bonuses earned during fiscal 2009. We recorded compensation expense of $50,000 representing the grant-date fair value of the award in our fourth quarter 2009 statement of income. The grant-date fair value of the award was determined using the closing price of our common stock as quoted on yahoo.com as of the date of grant.

(5)

Income Taxes. We adopted the provisions of ASC 740-10 (formerly FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“ASC 740-10”), on January 1, 2007. We performed a comprehensive review of our tax positions in accordance with recognition standards established by ASC 740-10. In this regard, an uncertain tax position represents our treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of our review, we do not believe that we have included any “uncertain tax positions” in our federal income tax return or in any state income tax returns. With few exceptions, we are no longer subject to federal income tax examinations for years prior to 2003.

During the quarter ended March 31, 2010, we recorded a state income tax benefit of $538,000 plus accrued interest income of $41,000 in connection with a tax refund to be received during the second quarter. The refund resulted from a state tax audit that led to the application of certain net operating loss carryforwards generated in previous years to years during which the Company had taxable income.

(6)

Fair Value Measurements. In September 2006, the FASB issued ASC 820-10-65 (formerly Statement of Financial Accounting Standards No. 157), "Fair Value Measurements and Disclosures". ASC 820-10-65 defines fair value, provides guidance for measuring fair value and requires certain disclosures. This statement applies under other accounting pronouncements that require or permit fair value measurements. The statement indicates, among other things, that a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. ASC 820-10-65 defines fair value based upon an exit price model. ASC 820-10-65 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

	· Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
	· Level 2: Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
	· Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

Our cash and cash equivalents consist of cash on deposit at various financial institutions at March 31, 2011 and 2010. Included on the balance sheet in prepaid expenses and other current assets are securities available for sale, stated at fair market value, of approximately $11,000 at March 31, 2011 and 2010.

(7)

Recent Accounting Pronouncements. In January 2010, the FASB issued an update regarding improving disclosures about fair value measurements. The update provides amendments requiring entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition the update requires entities to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The disclosures related to Level 1 and Level 2 fair value measurements were effective for us in the first quarter of 2010 and the disclosures related to Level 3 fair value measurements are effective for us in the first quarter of 2011. This new accounting update did not have a material impact on our financial condition, results of operations or cash flows.

(8)

Termination of Style 365 Agreement. During 2009, the Company announced that it had entered into a strategic alliance with Style 365 LLC (“Style 365”), a marketer of women’s fashion belts and accessories. During the quarter ended March 31, 2010, the Company decided to terminate that relationship. As a result, the Company recorded a pretax charge of $1,492,000 during that quarter in connection with certain inventory commitments made prior to the termination of its relationship with Style 365. This charge reflected management’s estimate of the costs associated with the disposition of this inventory. The Company is licensed to manufacture, distribute and sell women’s fashion accessories under certain of its license agreements, and continues to manufacture and sell women’s fashion accessories directly to certain of its licensors.

(9)

Subsequent Events The Company has evaluated all subsequent events through May 13, 2011, which represents the filing date of this Form 10-Q with the Securities and Exchange Commission, to ensure that this Form 10-Q includes appropriate disclosure of events both recognized in the financial statements as of March 31, 2011, and events which occurred subsequent to March 31, 2011 but were not recognized in the financial statements. As of May 13, 2011, there were no subsequent events which required recognition or disclosure.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are currently engaged in the importation, sale and distribution of men's belts, leather accessories, suspenders, and men's jewelry. Our products are sold both domestically and internationally under a broad assortment of brands including both licensed tradenames and private labels. We distribute our merchandise principally through department stores and through a wide variety of specialty stores and mass merchandisers. We also operate three factory outlet stores that distribute excess and out of line merchandise as well as certain other accessories.

Our net sales during the quarter ended March 31, 2011 increased 1.7% to $26,084,000 compared to $25,655,000 for the corresponding period in 2010. The increase was mainly due to higher net sales of our small leather goods merchandise, offset in part by decreases in men’s jewelry and belts. Gross profit during the quarter of $8,229,000 increased by $1,456,000 or 21.5% compared to last year’s gross profit of $6,773,000. Gross profit expressed as a percentage of net sales increased to 31.5% from 26.4% last year. As discussed in Note 8 to the financial statements above, gross profit for the quarter ended March 31, 2010 reflects a pretax charge of $1,492,000 associated with the termination of the Company’s relationship with Style 365.

Selling and administrative expenses during the quarter decreased $197,000 or 2.4% to $8,153,000 or 31.3% of net sales at March 31, 2011 from $8,350,000 or 32.5% of net sales at March 31, 2010. The decrease was due mainly to decreases in trade show costs, severance, travel costs, in-store sales support, sales-related advertising, freight and bad debts, as well as the elimination of costs associated with the Company’s former Style 365 women’s accessories division which was discontinued during the quarter ended March 31, 2010. These decreases were partially offset by increases in a certain variable warehouse and distribution costs including sales compensation, as well as increases in outside labor, property taxes and utilities.

Critical Accounting Policies and Estimates

We believe that the accounting policies discussed below are important to an understanding of our financial statements because they require management to exercise judgment and estimate the effects of uncertain matters in the preparation and reporting of financial results. Accordingly, management cautions that these policies and the judgments and estimates they involve are subject to revision and adjustment in the future.

Revenue Recognition

Net sales are generally recorded upon shipment, provided there exists persuasive evidence of an arrangement, the fee is fixed or determinable and collectability of the related receivable is reasonably assured. Allowances, including cash discounts, in-store customer allowances, cooperative advertising allowances and customer returns, which are all accounted for in accordance with ASC 605-15 (formerly Statement of Financial Accounting Standards No. 48), “Revenue Recognition When Right of Return Exists” and ASC 815-30 (formerly Emerging Issues Task Force Issue No. 01-09), "Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor's Products", are provided for at the time the revenue is recognized based upon historical experience, current trends in the retail industry and individual customer and product experience. Each spring upon the completion of processing returns from the preceding fall season, we record 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.

Allowance for Doubtful Accounts

Our allowances for receivables include cash discounts, doubtful accounts, in-store markdowns, cooperative advertising and customer returns. Provisions for doubtful accounts are reflected in selling and administrative expenses. We perform ongoing credit evaluations of our customers and maintain allowances for potential bad debt losses. We do not typically require collateral from our customers. 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 our share of certain promotions by our 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 (recoveries) provisions for bad debts during the three months ended March 31, 2011 and 2010 were $(126,000) and $98,000, respectively.

Environmental Costs

In accordance with ASC 410-30 (formerly AICPA Statement of Position 96-1), “Environmental Remediation Liabilities”, 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 a commitment made by us to a formal plan of action or other appropriate benchmark.

Inventory and Reserves

Inventories are stated at the lower of cost (principally average cost which approximates FIFO) or market. Our inventory is somewhat fashion oriented and, as a result, is subject to risk of rapid obsolescence. We believe that our inventory has been adequately adjusted, where appropriate, and that we have adequate channels to dispose of excess and obsolete inventory.

Income Taxes

We utilize 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. When necessary, a valuation allowance is recorded to reflect the estimated realization of the deferred tax asset. We determine if a valuation allowance for deferred tax assets is required based upon projections of taxable income or loss for future tax years in which the temporary differences that created the deferred tax asset are anticipated to reverse and the likelihood that the deferred tax assets will be recovered.

Results of Operations

As is customary in the fashion accessories industry, we make modifications to our merchandise lines coinciding with our Spring (January - June) and Fall (July - December) selling seasons. We believe that the results of operations are more meaningful on a seasonal basis 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 between quarters within a season differently in one year than in another. Due to seasonality and other factors, the results for the quarter are not necessarily indicative of the results to be expected for the full year.

Net Sales

Our net sales during the quarter ended March 31, 2011 increased $429,000 or 1.7% to $26,084,000 compared to $25,655,000 for the corresponding period in 2010. The increase was mainly due to higher net sales of our small leather goods, offset in part by decreases in our men’s jewelry and belt merchandise.

Net sales to international customers (including certain military accounts) increased $43,000 or 1.8% during the quarter due mostly to higher shipments of certain branded small leather goods merchandise collections to licensor retail stores and other licensor-affiliates partially offset by decreases in jewelry and belt merchandise.

Gross profit

Gross profit during the quarter of $8,229,000 increased by $1,456,000 or 21.5% compared to last year’s $6,773,000. As discussed above, gross profit for the quarter ended March 31, 2010 reflects a pretax charge of $1,492,000 associated with the termination of the Company’s relationship with Style 365 (see Note 8 to the financial statements). Gross profit expressed as a percentage of net sales increased to 31.5% from 26.4% last year. Exclusive of the Style 365 charge, gross profit as a percentage of net sales for the quarter ended March 31, 2010 would have been 5.8 percentage points higher. The increase in gross profit as a percentage of net sales this year was due mainly to the Style 365 charge recorded last year offset in part by a reduction in merchandise markup resulting in part from a less favorable sales mix relative to last year and by higher royalty expense.

Selling and Administrative Expenses

Selling and administrative expenses during the quarter decreased $197,000 or 2.4% to $8,153,000 or 31.3% of net sales at March 31, 2011 from $8,350,000 or 32.5% of net sales at March 31, 2010.

Selling expenses during the current quarter decreased $126,000 or 2.0% to $6,250,000 compared to $6,376,000 for the quarter ended March 31, 2010, and, expressed as a percentage of net sales, were 24.0% this year compared to 24.9% last year. The decrease was due mainly to decreases in trade show costs, severance, travel costs, in-store sales support, sales-related advertising and freight, as well as the elimination of costs associated with the Company’s former Style 365 women’s accessories division. As further described in Note 8 to the financial statements, the Company terminated its relationship with Style 365 during the quarter. All of these expenses were partially offset by increases in a number of variable warehouse and distribution costs, and sales compensation, as well as increases in outside labor, property taxes and utilities.

We routinely make expenditures for advertising and promotion as necessary to maintain and enhance both our licensed and private label businesses. Certain of our license agreements also require specified levels of spending. These expenditures, which consist primarily of media and print advertising, image fund contributions and other promotional costs, are included in selling and administrative expenses as incurred. In addition, we frequently make expenditures in connection with cooperative advertising programs, which are recorded as a reduction to net sales, to support various marketing initiatives sponsored by our customers. Expenditures for advertising and promotion, including cooperative advertising, totaled $964,000 or 3.7% of net sales for the quarter ended March 31, 2011, compared to $1,119,000 or 4.4% percent of net sales for the same quarter in fiscal 2010.

Administrative expenses decreased $71,000 or 3.6% during the quarter ended March 31, 2011 to $1,903,000 compared to $1,974,000 last year. Administrative expenses as a percentage of net sales were 7.3% and 7.7% for the quarters ended March 31, 2011 and 2010, respectively. A decrease in bad debt expense was partially offset by increases in compensation expense.

Interest Expense

Interest expense decreased by $20,000 or 32.3% during the quarter ended March 31, 2011 compared to the corresponding period last year. The decrease was due to a reduction in average borrowings. Average borrowings under our revolving credit agreement during the quarter fell $2,501,000 or 60.9% compared to the same period last year. The decrease was due to a significant increase in cash collections relative to the same time last year offset in part by an increase in inventory investment during the quarter.

Income Taxes

We recorded an income tax provision for the quarter ended March 31, 2011 of $2,000 reflecting an effective tax rate of 5.3%. State tax refunds of $12,000 recorded during the quarter reduced the effective tax rate by 34.1 percentage points. We recorded an income tax benefit for the quarter ended March 31, 2010 of $1,182,000. Included in this amount is a benefit of $538,000 associated with a state income tax refund in connection with the reallocation of certain net operating loss carryforwards generated in prior years to years during which the Company had taxable income resulting from a state tax audit. As of March 31, 2011, there have been no material changes to our uncertain tax positions disclosure as provided in Note D to the financial statements included in our 2010 Form 10-K. We do not anticipate that our unrecognized tax benefits will significantly change during the next 12 months.

Liquidity and Capital Resources

As is customary in the fashion accessories industry, substantial percentages of our sales and earnings occur in the months of September, October and November, when we make significant shipments of our products to retailers for sale during the holiday season. As a result, accounts receivable peak in the fourth quarter. We build inventory during the year to meet the demand for the holiday season. The required cash is provided by a revolving credit facility.

Our working capital increased $295,000 during the quarter ended March 31, 2011 compared to a decrease of $250,000 for the quarter ended March 31, 2010. The increase during the three-month period was mainly due to decreases in accounts payable and other current liabilities offset in part by decreases in cash and net accounts receivable and increases in net inventories and other current assets. Our working capital decreased $250,000 during the quarter ended March 31, 2010 mainly due to a decrease in net inventory investment and an increase in borrowings, mostly offset by increases in net accounts receivable and decreases in accounts payable, accrued employee compensation, and other current liabilities.

Cash used in operations during the quarter ended March 31, 2011 was $2,381,000 compared to cash used of $8,183,000 for the quarter ended March 31, 2010. Cash used in operations during the current quarter primarily reflects decreases in all current liabilities, inventory, current assets and a decrease in net accounts receivable. Cash used in operations during the first quarter last year primarily reflects increases in accounts receivable, other current assets and other noncurrent liabilities, and decreases in inventory, accounts payable, accrued royalties, and other current liabilities. The decrease in accounts receivable during the quarter was principally due to heavy shipments during 2010’s fourth quarter which were collected during the three-month period ended March 31, 2011. Net sales for the fourth quarter of 2010 were 26.2% higher than during the corresponding period in 2009. The decrease in accounts payable during last year’s first quarter was mainly due to payments associated with inventory received in late 2009 and early 2010. Inventory receipts were somewhat higher than usual during that period in anticipation of certain new merchandise collections expected to be shipped during the spring 2010 season.

Cash used in investing activities was $41,000 and $135,000 for the quarters ended March 31, 2011 and March 31, 2010, respectively. Cash used in investing activities during both years reflects capital expenditures and premiums on certain life insurance contracts owned by us.

Cash used in financing activities for the quarter ended March 31, 2011 was $474,000 compared to cash provided by financing activities of $7,890,000 during the quarter ended March 31, 2010. Cash used in or provided by financing activities in both years consists of net borrowings under our revolving credit agreement. The increase in borrowings during last year’s first quarter reflects the increase in inventory payments made during that period associated with merchandise received during the fourth quarter of 2009 and first quarter of 2010.

In the ordinary course of business, we may be contingently liable from time to time for performance under letters of credit. At March 31, 2011 and 2010, there were no outstanding letters of credit. We presently are required to pay a fee quarterly equal to 2.00% per annum on outstanding letters of credit.

We are also a party to employment agreements with certain of our executive officers that provide for the payment of compensation and other benefits during the term of each executive’s employment and, under certain circumstances, for a period of time following their termination. Please see the information set forth in Item 11 of our 2010 Form 10-K under the caption “Executive Compensation – Employment Contracts and Severance Agreements.”

We are subject to legal proceedings and claims that arise in the ordinary course of our business. Although there can be no assurance as to the disposition of these proceedings, we do not anticipate that these matters will have a material impact on our results of operations or financial condition.

"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 known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements, including, but not limited to, general economic and business conditions, competition in the accessories markets; potential changes in customer spending; acceptance of our product offerings and designs; the level of inventories maintained by our customers; the variability of consumer spending resulting from changes in domestic economic activity; a highly promotional retail environment; any significant variations between actual amounts and the amounts estimated for those matters identified as our critical accounting estimates as well as other significant accounting estimates made in the preparation of our financial statements; and the impact of the hostilities in the Middle East and the possibility of hostilities in other geographic areas as well as other geopolitical concerns. Accordingly, actual results may differ materially from such forward-looking statements.

You are urged to consider all such factors. In light of the uncertainty inherent in such forward-looking statements, you should not consider their inclusion to be a representation that such forward-looking matters will be achieved. We assume no obligation for updating any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

At the end of the period covered by this report, we carried out an evaluation, with the participation of our management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective. There was no change in our internal control over financial reporting during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)	Not applicable.

(b)	Not applicable.

(c)	Issuer Purchases of Equity Securities.

The following table provides certain information as to repurchases of shares of our Common Stock during the three months ended March 31, 2011:

Period	(a) Total Number of Shares (or Units) Purchased (1)	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

January 1, 2011 – January 31, 2011	5,257	$3.08	--	--
February 1, 2011 - February 28, 2011	--	--	--	--
March 1, 2011 - March 31, 2011	--	--	---	---
Total	5,257	$3.08	--	--

______________________

(1) These shares of Common Stock were repurchased by us from former employees pursuant to terms of The New Swank, Inc. Retirement Plan required under the Internal Revenue Code of 1986, as amended.

Item 6. Exhibits

	Exhibit Number	Description

	31.01	Rule 13a-14(a) Certification of John Tulin, Chief Executive Officer of the Company.

	31.02	Rule 13a-14(a) Certification of Jerold R. Kassner, Executive Vice President and Chief Financial Officer of the Company.

	32.01	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 13, 2011	SWANK, INC. Registrant s/s Jerold R. Kassner________
	Jerold R. Kassner, Executive Vice President, Chief Financial Officer and Treasurer

EXHIBIT INDEX

Exhibit No. Description

31.01

Rule 13a-14(a) Certification of John Tulin, Chief Executive Officer of the Company.

31.02

Rule 13a-14(a) Certification of Jerold R. Kassner, Executive Vice President and Chief Financial Officer of the Company.

32.01

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Attached files

Swank, Inc. Reports

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