**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,                        2008** |
|           |   |
|           | **OR** |
|           |   |   |
| **o**          |   | **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, and (2) has been subject to such filing requirements for the past        90 days.

| Yes x | No o |
|-------|------|

 

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 filero | Accelerated filero |
|--------|--------------------------|--------------------|

 

|   | Non-accelerated filer                         o | 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 o | 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, 2008 |
|------------------------------|--------------------------------------|
| Common Stock, $.10 par value | 6,011,805                            |

 

 

----

**SWANK, INC.**

 

**INDEX**

|                              | Page No.                                                                                                     |
|-----------------------------------|--------------------------------------------------------------------------------------------------------------|
| **Part I. Financial Information** |                                                                                                         |
|                              |                                                                                                         |   |
| Item 1.                           | Condensed Financial Statements and Related                        Notes                                      | 3 – 9 |
|                              |                                                                                                         |   |
| Item 2.                           | Management's Discussion and Analysis of                        Financial Condition and Results of Operations | 9 – 13 |
|                              |                                                                                                         |   |
| Item 3.                           | Quantitative and Qualitative Disclosures                        about Market Risk                            | 13 |
|                              |                                                                                                         |   |
| Item 4.                           | Controls and Procedures                                                                                      | 13 |
|                              |                                                                                                         |   |
|                              |                                                                                                         |   |
| **Part II. Other Information**    |                                                                                                         |
|                              |                                                                                                         |   |
|                              |                                                                                                         |   |
| Item 6.                           | Exhibits                                                                                                     | 13 |
|                              |                                                                                                         |   |
| Signatures                        | 14                                                                                                           |
|                              |                                                                                                         |   |
| Exhibit Index                     | 15                                                                                                           |
|                                   |                                                                                                              |  |  |

 

 

2

 

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**Part I. Financial Information**

 

**Item 1. Financial Statements**

 

**SWANK,        INC.**

**CONDENSED BALANCE SHEETS**

**(Dollars in thousands except share data)**

 

|                                                                      |  

**March 31, 2008** | **December 31, 2007** |
|---------------------------------------------------------------------------|----------------------------|-----------------------|
|                                                                      |                       | **(Unaudited)**       |   |   |
|                                                                      | **ASSETS**                 |                  |   |   |   |
| Current:                                                                  |                       |                  |   |   |
| Cash and cash equivalents                                                 |                       | $ 615                 |   | $ 2,339 |
| Accounts receivable, less allowances                                      |                       |                  |   |   |
| of $3,656 and $5,052, respectively                                        |                       | 16,055                |   | 18,327 |
| Inventories, net:                                                         |                       |                  |   |   |
| Work in process                                                           | 992                        |                  | 1,054 |   |
| Finished goods                                                            | 22,382                     |                  | 25,611 |   |
|                                                                      |                       | 23,374                |   | 26,665 |
| Deferred taxes, current                                                   |                       | 2,929                 |   | 2,929 |
| Prepaid and other current assets                                          |                       | 1,293                 |   | 1,075 |
|                                                                      |                       |                  |   |   |
| Total current assets                                                      |                       | 44,266                |   | 51,335 |
|                                                                      |                       |                  |   |   |
| Property, plant and equipment, net of                                     |                       |                  |   |   |
| accumulated depreciation                                                  |                       | 1,313                 |   | 1,117 |
| Deferred taxes, noncurrent                                                |                       | 2,106                 |   | 2,106 |
| Other assets                                                              |                       | 3,643                 |   | 3,601 |
|                                                                      |                       |                  |   |   |
| Total assets                                                              |                       | **$ 51,328**          |   | **$ 58,159** |
|                                                                      |                       |                  |   |   |
|                                                                      | **LIABILITIES**            |                  |   |   |   |
| Current:                                                                  |                       |                  |   |   |
| Note payable to bank                                                      |                       | $ 14,699              |   | $ 13,199 |
| Current portion of long-term obligations                                  |                       | 630                   |   | 632 |
| Accounts payable                                                          |                       | 2,918                 |   | 7,057 |
| Accrued employee compensation                                             |                       | 705                   |   | 1,752 |
| Other current liabilities                                                 |                       | 113                   |   | 2,917 |
|                                                                      |                       |                  |   |   |
| Total current liabilities                                                 |                       | 19,065                |   | 25,557 |
|                                                                      |                       |                  |   |   |
| Long-term obligations                                                     |                       | 6,371                 |   | 6,321 |
|                                                                      |                       |                  |   |   |
| Total liabilities                                                         |                       | 25,436                |   | 31,878 |
|                                                                      |                       |                  |   |   |
|                                                                      | **STOCKHOLDERS' EQUITY**   |                  |   |   |   |
| Preferred stock, par value $1.00:                                         |                       |                  |   |   |
| Authorized - 1,000,000 shares                                             |                       | -                     |   | - |
| Common stock, par value $.10:                                             |                       |                  |   |   |
| Authorized - 43,000,000 shares:                                           |                       |                  |   |   |
| Issued -- 6,385,379 shares                                                |                       | 639                   |   | 639 |
| Capital in excess of par value                                            |                       | 1,848                 |   | 1,826 |
| Retained earnings                                                         |                       | 24,975                |   | 25,386 |
| Accumulated other comprehensive (loss), net of                        tax |                       | (469)                 |   | (469) |
| Treasury stock, at cost, 373,574 shares                                   |                       | (1,101)               |   | (1,101) |
|                                                                      |                       |                  |   |   |
| Total stockholders' equity                                                |                       | 25,892                |   | 26,281 |
|                                                                      |                       |                  |   |   |
| Total liabilities and stockholders' equity                                |                       | **$ 51,328**          |   | **$ 58,159** |
|                                                                      |                       |                  |   |   |

 

 

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

 

3

 

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**SWANK,        INC.**

**CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)**

**FOR        THE QUARTERS ENDED MARCH 31, 2008 AND 2007**

**(Dollars in thousands except share and per share data)**

**---------------------------------**

 

|                                                                                           | **2008**      | **2007**      |
|------------------------------------------------------------------------------------------------|---------------|---------------|
|                                                                                           |          |          |
| Net sales                                                                                      | $ 24,718 | $ 24,988 |
|                                                                                           |          |          |
| Cost of goods sold                                                                             | 17,271        | 16,853        |
|                                                                                           |          |          |
| Gross profit                                                                                   | 7,447         | 8,135         |
|                                                                                           |          |          |
| Selling and administrative expenses                                                            | 7,886         | 7,648         |
|                                                                                           |          |          |
| (Loss) income from operations                                                                  | (439)         | 487           |
|                                                                                           |          |          |
| Interest expense                                                                               | 221           | 337           |
|                                                                                           |          |          |
| (Loss) income from operations before income taxes                                              | (660)         | 150           |
|                                                                                           |          |          |
| (Benefit) provision for income taxes                                                           | (249)         | 57            |
|                                                                                           |          |          |
| **Net (loss) income**                                                                          | $ (411)       | $ 93     |
|                                                                                           |          |          |
| Share and per share information:                                                               |          |          |
| Basic net (loss) income per weighted average common share                        outstanding   | $ (.07)  | $  .02   |
| Basic weighted average common shares outstanding                                               | 6,011,805     | 6,074,699     |
| Diluted net (loss) income per weighted average common share                        outstanding | $ (.07)  | $  .02   |
| Diluted weighted average common shares                        outstanding                      | 6,011,805     | 6,082,411     |

 

 

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

 

4

 

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**SWANK,        INC.**

**CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)**

**FOR        THE THREE-MONTHS ENDED MARCH 31, 2008 AND 2007**

**(Dollars in thousands)**

**--------------**

 

|                                                                                                | **2008**                                                               | **2007**           |
|-----------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|--------------------|
| Cash flows from operating activities:                                                               |                                                                   |               |
|                                                                                                |                                                                   |               |
| Net (loss) income                                                                                   | $ (411)                                                           | $ 93          |
| Adjustments to reconcile net (loss) income to net cash (used                        in) operations: |                                                                   |               |
|                                                                                                | Depreciation and amortization                                          | 102                | 47 |
|                                                                                                | Bad debt expense                                                       | 115                | 102 |
|                                                                                                | Stock-based compensation expense                                       | 22                 | - |
|                                                                                                |                                                                   |               |
| Changes in assets and liabilities:                                                                  |                                                                   |               |
|                                                                                                | Decrease in accounts receivable                                        | 2,157              | 82 |
|                                                                                                | Decrease (increase) in inventory                                       | 3,291              | (6,458) |
|                                                                                                | (Increase) in prepaid and other assets                                 | (263)              | (234) |
|                                                                                                | (Decrease) in accounts payable                                         | (3,713)            | (2,756) |
|                                                                                                | (Decrease) in all other current liabilities                            | (4,279)            | (2,238) |
|                                                                                                | Increase in long-term obligations                                      | 50                 | 98 |
|                                                                                                | **Net cash (used in) operations**                                      | **(2,929)**        | **(11,264)** |
|                                                                                                |                                                                   |               |
| Cash flows from investing activities:                                                               |                                                                   |               |
|                                                                                                | Capital expenditures                                                   | (275)              | (81) |
|                                                                                                | Premiums on life insurance                                             | (20)               | (20) |
|                                                                                                | **Net cash (used in) investing activities**                            | **(295)**          | **(101)** |
|                                                                                                |                                                                   |               |
| Cash flows from financing activities:                                                               |                                                                   |               |
|                                                                                                | Borrowing under revolving credit agreements                            | 14,385             | 23,564 |
|                                                                                                | Payments of revolving credit obligations                               | (12,885)           | (12,646) |
|                                                                                                | **Net cash provided by financing activities**                          | **1,500**          | **10,918** |
|                                                                                                |                                                                   |               |
|                                                                                                | **Net (decrease) in cash and cash                        equivalents** | **(1,724)**        | **(447)** |
|                                                                                                |                                                                   |               |   |
|                                                                                                | Cash and cash equivalents at beginning of period                       | 2,339              | 899 |
|                                                                                                |                                                                   |               |   |
|                                                                                                | **Cash and cash equivalents at end of period**                         | **$** **615** | **$** **452** |
|                                                                                                |                                                                   |               |   |
| **Cash paid during the three months for:**

                                                   |                                                                   |               |
| Interest                                                                                            | $ 221                                                                  | $ 337              |
| Taxes                                                                                               | $1,673                                                                 | $ 1,076            |
|                                                                                                     |                                                                        |                    |  |  |

 

 

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

 

5

 

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**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, 2008 and 2007. 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 2007 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, 2008 may not be indicative of the results that may                        be expected for the year ended December 31, 2008 or any other                        period.

                          |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | **Net (Loss) Income per Share**.                        The following table sets forth the computation of the net (loss) income per                        share for the periods ended March 31, 2008 and March 31, 2007 (in                        thousands, except for share and per share data): |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|                                                                                                                              | Quarter         |
|-----------------------------------------------------------------------------------------------------------------------------------|-----------------|
|                                                                                                                              | Ended March 31, |
|                                                                                                                              | 2008            | 2007 |
| Numerator:                                                                                                                        |            |   |
| Net (loss) income                                                                                                                 | $ (411)         | $ 93 |
| **Denominators:**                                                                                                                 |            |   |
| Shares used in computing basic net (loss) income per                        weighted average common share outstanding             | 6,011,805       | 6,074,699 |
| Effect of dilutive options                                                                                                        | -               | 7,712 |
| Shares used in computing net (loss) income per weighted                        average common share outstanding assuming dilution | 6,011,805       | 6,082,411 |
|                                                                                                                              |            |   |
| Basic net (loss) income per weighted average common share                        outstanding                                      | $ (.07)         | $ .02 |
| Fully diluted net (loss) income per weighted average common                        share outstanding                              | $ (.07)         | $ .02 |

 

Certain potentially dilutive securities in the amount of 1,136 shares were        not included in the computation of diluted earnings per share for the quarter ended March        31, 2008 since the inclusion would have been antidilutive.

 

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

                                                                                                                      |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | **Stock Options**. In 1994, we                        established the 1994 Director Plan pursuant to which options could be                        granted to non-employee directors to purchase up to 50,000 shares of common                        stock at market value on the date of grant. Options granted under the 1994                        Plan were for a period of five years and were immediately exercisable. All                        of the shares available for grant under the 1994 Plan have been granted. In                        April 1998, our stockholders approved the 1998 Plan, which replaced our                        prior incentive stock plans, all of which had expired by their terms. The                        1998 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. We                        granted options for 625,000 shares under the 1998 Plan in 2001. These                        shares vested immediately. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

During the first quarter of 2008, the remaining 375,000 shares under the        1998 Plan were granted to certain key executives of the Company. Of the 375,000 shares        granted, 260,000 incentive stock option 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. We believe that the        significant improvement in the Company’s financial condition during the past four        years makes share prices prior to December 2004 not meaningful as indicators of expected        future volatility. The expected term of the options is four years, based on the simplified        method of calculating expected life pursuant to SFAS 123(R) and Staff Accounting Bulletin        No. 107. 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.        SFAS 123(R) 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.

 

6

 

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The following assumptions were used to estimate the fair value of stock        option shares granted to employees using the Black-Scholes option-pricing model during the        three months ended March 31, 2008:

 

          

|                    | GrantedQuarter endedMarch 31, 2008

                          |
|-------------------------|--------------------------------------------------------------------|
| Expected volatility     | 70%                                                                |
| Risk-free interest rate | 2.73%                                                              |
| Expected option life    | 4 years                                                            |
| Expected dividend yield | N/A                                                                |
| Assumed forfeiture rate | 0%                                                                 |

 

The weighted average grant date fair value of share options granted during        the three months ended March 31, 2008 was $2.70. No shares were granted during the        three months ended March 31, 2007. There were no stock options exercised and the Company        did not recognize any related tax benefits during the three months ended March 31,        2008 and 2007. As of March 31, 2008, there was $992,000 in total unrecognized        compensation cost related to outstanding options granted after the adoption of SFAS 123(R)        that is expected to be recognized over the vesting period of the grant.

 

Option activity under the stock-based compensation plans during the quarter        ended March 31, 2008 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, 2007             | 1,667                                                                     | $1.60                           | 2.61                                                                       | $6                                            |
| Granted                                      | 375,000                                                                   | 5.21                            | 4.92                                                                       | -                                             |
| Exercised                                    | -                                                                         | -                               | -                                                                          | -                                             |
| Forfeited/ Expired                           |             - | -                               | -                                                                          | -                                             |
| Outstanding at March 31, 2008                | 376,667                                                                   | $5.19                           | 4.91                                                                       | $5                                            |
|                                         |                                                                      |                            |                                                                       |                                          |
| Vested or expected to vest at March 31, 2008 | 1,667                                                                     | $1.60                           | 2.44                                                                       | $5                                            |
|                                         |                                                                      |                            |                                                                       |                                          |
| Exercisable at March 31, 2008                | 1,667                                                                     | $1.60                           | 2.44                                                                       | $5                                            |

 

 

* The aggregate intrinsic value on this table was calculated based on the        positive difference between the valuation of our common stock on March 31, 2008 and the        exercise price of the underlying options.

 

All options granted under the 1994 Director Plan are vested as of March 31,        2008.

 

The above table reflects the 375,000 option shares issued under the 1998        Plan and 1,667 option shares issued, outstanding, and exercisable at $1.60 per share under        the 1994 Director Plan.

         

| (5) | **Income Taxes**. We adopted the                        provisions of FIN 48, “*Accounting for                        Uncertainty in Income Taxes – an interpretation of FASB Statement No.                        109*”, on January 1, 2007. We performed a                        comprehensive review of our tax positions in accordance with recognition                        standards established by FIN 48. 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 2002. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

7

 

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| (6) | **Fair Value                        Measurements.** In September 2006, the Financial Accounting                        Standards Board (“FASB”) issued Statement of Financial                        Accounting Standards No. 157, "Fair Value Measurements" ("SFAS 157"). We                        adopted SFAS 157 on January 1, 2008 for our financial assets and financial                        liabilities. However, the FASB deferred the effective date of SFAS 157 for                        one year as it relates to fair value measurement requirements for                        nonfinancial assets and nonfinancial liabilities that are not recognized or                        disclosed at fair value on a recurring basis. The adoption of SFAS 157 for                        our financial assets and financial liabilities did not have a material                        impact on our financial statements. We are evaluating the effect the                        implementation of SFAS 157 for our nonfinancial assets and nonfinancial                        liabilities will have on our financial statements. SFAS 157 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 the                        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.                        SFAS 157 defines fair value based upon an exit price model. SFAS No. 157                        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, 2008. We do not have any financial assets or        liabilities that require disclosure of fair value at March 31, 2008.

         

| (7) | **Recent Accounting                        Pronouncements**. In February 2007, the FASB issued                        SFAS No. 159, "*The Fair Value Option for Financial                        Assets and Financial Liabilities*" ("SFAS 159").                        SFAS 159 permits entities to choose to measure certain financial                        instruments and other eligible items at fair value when the items are not                        otherwise currently required to be measured at fair value. We adopted SFAS                        159 effective January 1, 2008. Upon adoption, we did not elect the fair                        value option for any items within the scope of SFAS 159 and, therefore, the                        adoption of SFAS 159 did not have an impact on our consolidated financial                        statements. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007),        “*Business Combinations*”        (“SFAS 141R”). SFAS 141R addresses the recognition and accounting for        identifiable assets acquired, liabilities assumed, and noncontrolling interests in business        combinations. SFAS 141R also establishes expanded disclosure requirements for business        combinations. SFAS 141R is effective for us on January 1, 2009, and we will apply SFAS 141R        prospectively to all business combinations subsequent to the effective date.

 

In December 2007, the FASB issued SFAS No.160,        “*Noncontrolling Interests in Consolidated Financial        Statements – an amendment of ARB No. 51*” (“SFAS        No. 160”), to improve the relevance, comparability, and transparency of the financial        information a reporting entity provides in its consolidated financial statements. SFAS No.        160 amends ARB 51 to establish accounting and reporting standards for noncontrolling        interests in subsidiaries and to make certain consolidation procedures consistent with the        requirements of SFAS No. 141R. It defines a noncontrolling interest in a subsidiary as an        ownership interest in the consolidated entity that should be reported as equity in the        consolidated financial statements. SFAS No. 160 changes the way the consolidated income        statement is presented by requiring consolidated net income to include amounts attributable        to the parent and the noncontrolling interest. SFAS No. 160 establishes a single method of        accounting for changes in a parent’s ownership interest in a subsidiary which do not        result in deconsolidation. SFAS No. 160 also requires expanded disclosures that clearly        identify and distinguish between the interests of the parent and the interests of the        noncontrolling owners of a subsidiary. SFAS No. 160 is effective for financial statements        issued for fiscal years beginning on or after December 15, 2008, and interim periods within        those fiscal years.  We do not believe that the adoption of SFAS No. 160 will have a        material effect on our financial condition, results of operations and cash        flows.

 

In March 2008, the FASB issued SFAS No. 161,        “*Disclosures about Derivative Instruments and Hedging        Activities - an amendment of FASB Statement No. 133*”        (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements of        Statement 133 to provide a better understanding of how and why an entity uses        derivative

 

8

 

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instruments, how derivative instruments and related hedged items are        accounted for, and their effect on an entity’s financial position, financial        performance, and cash flows. SFAS 161 is effective for fiscal years beginning after        November 15, 2008. We do not believe that the adoption of SFAS No. 160 will have a material        effect on our financial condition, results of operations and cash flows.

 

**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 a number of factory outlet stores primarily to distribute excess and out of line        merchandise.

 

Our net sales during the quarter ended March 31, 2008 decreased 1.1% to        $24,718,000 compared to $24,988,000 for the corresponding period in 2007. The decrease was        mainly due to higher cooperative advertising and in-store markdown allowances, which are        recorded as a reduction to net sales, and lower shipments of our jewelry and belt        merchandise, offset in part by increased shipments of our personal leather goods        collections. Gross profit during the quarter decreased 8.5% to $7,447,000 compared to        $8,135,000 in 2007. Gross profit expressed as a percentage of net sales declined to 30.1%        from 32.6% last year. The decrease in gross profit both in dollars and as a percentage of        net sales was due mainly to the decrease in net sales and an increase in certain        promotional expenditures, offset partially by a decrease in inventory control-related        expenses and merchandise cost. Selling and administrative expenses increased $238,000 or        3.1% during the quarter primarily due to higher freight on sales, advertising, in-store        sales support, and certain costs associated with our Luxury Division, which we established        early last year, as well as increases in depreciation and professional fees, all offset        partially by decreases in certain fringe-benefit and travel-related expenses.

 

***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. We record revenues net of sales        allowances, including cash discounts, in-store customer allowances, cooperative        advertising, and customer returns, which are all accounted for in accordance with Statement        of Financial Accounting Standards No. 48, “Revenue Recognition When Right of Return        Exists,” and 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". Sales        allowances are estimated using a number of factors including historical experience, current        trends in the retail industry and individual customer and product experience. We reduce 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, 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***

We determine allowances for doubtful accounts using a number of factors        including historical collection experience, general economic conditions and the amount of        time an account receivable is past its payment due date. In certain circumstances where it        is believed a customer is unable to meet its financial obligations, a specific allowance        for doubtful accounts is recorded to reduce the account receivable to the amount believed        to be collectable.

 

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***Environmental Costs***

In accordance with 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***

 

Net sales for the quarter ended March 31, 2008 decreased $270,000, or 1.1%,        compared to the quarter ended March 31, 2007. The decrease was mainly due to higher        cooperative advertising and in-store markdown allowances, which are recorded as a reduction        to net sales, and lower shipments of our jewelry and belt merchandise, offset in part by        increased shipments of our personal leather goods collections. The increase in advertising        and in-store markdown expenditures resulted from a generally more promotional retail        environment during the quarter relative to last year, following a relatively disappointing        2007 holiday season. The decrease in jewelry net sales was principally due to a reduction        in certain private label shipments compared to last year, while the increase in our        personal leather goods business was due mainly to shipments of our Tumi collections, which        were first shipped to retailers during the third quarter of 2007. Our belt net sales        declined 8.5% during the quarter due in part to a decrease in private label shipments to a        certain chain store retailer that was partially offset by an increase in Tumi        shipments.

 

Net sales to international customers (including certain military accounts)        increased $692,000 or 28.9% during the quarter due mostly to higher shipments of our Tumi        and Guess branded merchandise to licensor retail stores and other        licensor-affiliates.

 

***Gross profit***

 

Gross profit for the quarter ended March 31, 2008 decreased $688,000 or 8.5%        compared to the quarter ended March 31, 2007. Gross profit expressed as a percentage of net        sales during the quarter was 30.1% compared to 32.6% last year. The decrease in gross        profit in both dollars and as a percentage of net sales was mainly due to the increase in        promotional expenditures during the quarter as well the decrease in jewelry and belt        shipments. In addition, display expenditures, which are included in cost of goods sold,        increased during the quarter while inventory control-related expenses and        merchandise

 

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cost        decreased. The increase in display expense was associated with a fixturing program for a        major chain store customer designed to give certain of our jewelry brands more prominent        retail exposure. The decrease in inventory control expenses reflects a reduction in        merchandise markdowns associated with sales of excess and discontinued inventory and the        decrease in merchandise cost was due to better utilization of more efficient shipping modes        from our suppliers. Royalty expense increased 8.0% during the quarter and, as a percentage        of net sales, increased to 6.7% from 6.1% last year. The increase was due mainly to sales        mix and, in certain circumstances, increases in minimum obligations due to licensors        relative to the prior year.

 

***Selling and Administrative Expenses***

 

Selling and administrative expenses for the quarter ended March 31, 2008        increased $238,000 or 3.1% compared to the quarter ended March 31, 2007. Selling and        administrative expenses expressed as a percentage of net sales were 31.9% and 30.6% for the        quarters ended March 31, 2008 and 2007 respectively.

 

Selling expenses increased $249,000 or 4.3% compared to the quarter ended        March 31, 2007, and, expressed as a percentage of net sales, were 24.3% and 23.0% for the        quarters ended March 31, 2008 and 2007, respectively. The increase was mainly due to higher        freight on sales, advertising, in-store sales support expenses, and costs associated with        our Luxury Division, which was established early last year to develop and market our Tumi        collection of men’s accessories.

 

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 to support        various marketing initiatives sponsored by our customers. Accruals associated with        cooperative advertising expenditures are recorded as a reduction to net sales. Expenditures        for advertising and promotion, including cooperative advertising, totaled $831,000 or 3.4%        of net sales for the quarter ended March 31, 2008, compared to $762,000 or 3.1% percent of        net sales for the same quarter in fiscal 2007.

 

Administrative expenses decreased $11,000 or less than 1% during the quarter        ended March 31, 2008 compared to the same period last year. Administrative expenses as a        percentage of net sales were 7.6% for both the quarters ended March 31, 2008 and 2007. The        decrease in administrative expenses for the quarter was mainly due to reductions in certain        fringe benefit and travel-related costs, offset in part by increases in depreciation and        professional fees.

 

***Interest Expense***

 

Net interest expense decreased by $116,000 or 34.4% during the quarter ended        March 31, 2008 compared to the corresponding period last year. The decrease was due to        reductions in both average borrowings and average borrowing costs. Average borrowings under        our revolving credit agreement during the quarter fell $687,000 or 5.6% compared to the        same time last year. Our borrowing costs declined due to a reduction in our contractual        interest rate that was effective July 2, 2007 under our revolving credit agreement as well        as recent decreases generally in short-term interest rates.

 

***Income Taxes***

 

We recorded an income tax benefit for the quarter ended March 31, 2008 of        $249,000 reflecting an effective tax rate of 37.7%. We recorded an income tax provision on        our net income during the quarter ended March 31, 2007 of $57,000 or an effective rate of        38.0%. As of March 31, 2008, there have been no material changes to our uncertain tax        positions disclosure as provided in Note E to the financial statements included in our        fiscal 2007 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

 

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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 decreased by $577,000 during the quarter ended March 31,        2008 compared to an increase of $167,000 for the quarter ended March 31, 2007. The decrease        during the current quarter was mainly due to reductions in cash and net accounts receivable        balances as well as decreases in inventory, offset by decreases in accounts payable,        accrued employee compensation and income taxes payable. The increase for the period ended        March 31, 2007 was principally due to increases in inventory balances and decreases in        accounts payable, and other current liabilities. During the fourth quarter of 2007, we        determined that certain merchandise shipments in-transit to us from our suppliers would be        more appropriately presented as an inclusion to gross inventory on our balance sheet.        Accordingly, we included in both gross inventory and accounts payable $1,857,000 and        $3,645,000 at March 31, 2008 and 2007, respectively, and $5,141,000 and $4,286,000 at        December 31, 2007 and 2006, respectively, to reflect the impact of in-transit        merchandise.

 

Cash used in operations during the quarter ended March 31, 2008 was        $2,929,000 compared to cash used in 2007 of $11,264,000. Cash used in operations during the        current quarter primarily reflects decreases in accounts payable, accrued employee        compensation, and other current liabilities, offset in part by decreases in net accounts        receivable and inventories. Cash used in operations during the quarter ended March 31, 2007        primarily reflects the increase in inventories and decreases in accounts payable and other        current liabilities.

 

The increase in inventory balances during the quarter ended March 31, 2007        was primarily associated with anticipated increases in net sales generally and the        expansion of a certain private label belt program for a major chain store retailer during        the spring 2007 selling season. Inventory balances generally increased throughout 2007 due        to expected increases in shipping volume which, particularly during the first quarter,        included certain new merchandise programs for which we had little or no current inventory        on hand. We also made an effort to respond more effectively to our retail customers’        delivery requirements by accelerating certain belt and personal leather goods inventory        purchases such that inventory deliveries to our warehouse were made somewhat earlier in the        season relative to our customary practice. Inventory levels began trending down later in        the year as purchases reflected our updated sales forecasts for the fall 2007 and spring        2008 seasons. Inventories declined $3,291,000 during the three months ended March 31, 2008,        compared to an increase of $6,458,000 for the three months ended March 31, 2007.

 

Cash used in investing activities was $295,000 and $101,000 for the quarters        ended March 31, 2008 and March 31, 2007, respectively. In both years, cash used in        investing activities reflects capital expenditures and premiums on certain life insurance        contracts owned by us.

 

Cash provided by financing activities for the quarter ended March 31, 2008        was $1,500,000 compared to $10,918,000 during the quarter ended March 31, 2007. Cash        provided by financing activities in both years consists of net borrowings of short-term        debt under our revolving credit agreement.

 

In the ordinary course of business, we are contingently liable for        performance under letters of credit. At March 31, 2008, outstanding letters of credit        totaled $84,000. 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 fiscal        2007 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

 

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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,        2008 that has materially affected, or is reasonably likely to materially affect, our        internal control over financial reporting.

 

**PART        II - OTHER INFORMATION**

 

 

| **Item                        6.**   **Exhibits** |
|------------------------------------------------------------------|
|                                                             |
|                                                             | ExhibitNumber | 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. |

 

 

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**SIGNATURES**

 

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

 

 

|   | SWANK, INC. |
|--------|-------------|

 

|   | Registrant |
|--------|------------|

 

 

| Date:   | May 14, 2008 | s/s Jerold R.                        Kassner                                                              |
|-------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Jerold R. Kassner,                        Executive Vice President,                        Chief Financial Officer and Treasurer

                          |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

 

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**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. |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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