Table of Contents
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2003
Commission File Number 0-18927
TANDY BRANDS ACCESSORIES, INC.
Delaware | 75-2349915 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
690 East Lamar Boulevard, Suite 200, Arlington, TX 76011
(Address of principal executive offices and zip code)
(817) 548-0090
(Registrant’s telephone number, including area code)
Former name, former address and former fiscal year, if changed since last report:
Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Class | Number of shares outstanding at May 9, 2003 | |
Common stock, $1.00 par value | 5,985,024 |
Table of Contents
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended March 31, 2003
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Item | Page No. | |||||||
1. | Financial Statements | 3-13 | ||||||
2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14-18 | ||||||
3. | Quantitative and Qualitative Disclosures About Market Risk | 19 | ||||||
4. | Controls and Procedures | 19 | ||||||
PART II — OTHER INFORMATION | ||||||||
Item | ||||||||
6. | Exhibits and Reports on Form 8-K | 20 | ||||||
SIGNATURES | 21 | |||||||
CERTIFICATIONS | 22-23 | |||||||
EXHIBIT INDEX | 24-27 |
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months | Nine Months | |||||||||||||||||
Ended | Ended | |||||||||||||||||
March 31 | March 31 | |||||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||
Net sales | $ | 47,011 | $ | 46,629 | $ | 173,261 | $ | 161,342 | ||||||||||
Cost of goods sold | 30,499 | 30,354 | 112,735 | 104,818 | ||||||||||||||
Gross margin | 16,512 | 16,275 | 60,526 | 56,524 | ||||||||||||||
Selling, general and administrative expenses | 13,149 | 13,304 | 43,787 | 40,417 | ||||||||||||||
Depreciation and amortization | 1,071 | 1,295 | 3,229 | 4,017 | ||||||||||||||
Total operating expenses | 14,220 | 14,599 | 47,016 | 44,434 | ||||||||||||||
Operating income | 2,292 | 1,676 | 13,510 | 12,090 | ||||||||||||||
Interest expense | (613 | ) | (720 | ) | (2,020 | ) | (2,355 | ) | ||||||||||
Royalty and other income | 15 | 28 | 61 | 40 | ||||||||||||||
Income before provision for income taxes and cumulative effect of accounting change | 1,694 | 984 | 11,551 | 9,775 | ||||||||||||||
Provision for income taxes | 662 | 386 | 4,497 | 3,804 | ||||||||||||||
Net income before cumulative effect of accounting change | 1,032 | 598 | 7,054 | 5,971 | ||||||||||||||
Cumulative effect of accounting change for SFAS No. 142, net of income taxes of $369,000 | — | — | (581 | ) | — | |||||||||||||
Net income | $ | 1,032 | $ | 598 | $ | 6,473 | $ | 5,971 | ||||||||||
Earnings per common share | ||||||||||||||||||
Before cumulative effect of accounting change | $ | 0.17 | $ | 0.10 | $ | 1.19 | $ | 1.04 | ||||||||||
Cumulative effect of accounting change | — | — | (0.10 | ) | — | |||||||||||||
$ | 0.17 | $ | 0.10 | $ | 1.09 | $ | 1.04 | |||||||||||
Earnings per common share — assuming dilution | ||||||||||||||||||
Before cumulative effect of accounting change | $ | 0.17 | $ | 0.10 | $ | 1.18 | $ | 1.03 | ||||||||||
Cumulative effect of accounting change | — | — | (0.10 | ) | — | |||||||||||||
$ | 0.17 | $ | 0.10 | $ | 1.08 | $ | 1.03 | |||||||||||
Common shares outstanding | 5,976 | 5,800 | 5,930 | 5,760 | ||||||||||||||
Common shares outstanding — assuming dilution | 6,069 | 5,853 | 6,020 | 5,790 | ||||||||||||||
Cash dividends per common share | None | None | None | None |
The accompanying notes are an integral part of these condensed financial statements.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, | June 30, | |||||||||
2003 | 2002 | |||||||||
ASSETS | (Unaudited) | |||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 2,032 | $ | 6,506 | ||||||
Accounts receivable, net | 44,942 | 33,699 | ||||||||
Inventories: | ||||||||||
Raw materials and work in process | 4,958 | 4,957 | ||||||||
Finished goods | 55,575 | 47,861 | ||||||||
Other current assets | 4,825 | 4,806 | ||||||||
Total current assets | 112,332 | 97,829 | ||||||||
Property and equipment, at cost | 30,831 | 29,441 | ||||||||
Accumulated depreciation | (16,560 | ) | (14,373 | ) | ||||||
Net property and equipment | 14,271 | 15,068 | ||||||||
Other assets: | ||||||||||
Goodwill | 11,550 | 12,467 | ||||||||
Intangible assets, less amortization | 5,009 | 5,403 | ||||||||
Other assets | 2,290 | 2,670 | ||||||||
Total other assets | 18,849 | 20,540 | ||||||||
$ | 145,452 | $ | 133,437 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 7,529 | $ | 12,755 | ||||||
Accrued expenses | 7,913 | 6,857 | ||||||||
Total current liabilities | 15,442 | 19,612 | ||||||||
Other liabilities: | ||||||||||
Notes payable | 38,190 | 30,000 | ||||||||
Other noncurrent liabilities | 3,379 | 3,161 | ||||||||
Total other liabilities | 41,569 | 33,161 | ||||||||
Stockholders’ equity: | ||||||||||
Preferred stock, $1 par value, 1,000,000 shares authorized, none issued | — | — | ||||||||
Common stock, $1 par value, 10,000,000 shares authorized, 5,977,424 shares and 5,899,173 shares issued and outstanding as of March 31, 2003 and June 30, 2002, respectively | 5,977 | 5,899 | ||||||||
Additional paid-in capital | 23,420 | 22,690 | ||||||||
Cumulative other comprehensive income | (1,722 | ) | (1,706 | ) | ||||||
Retained earnings | 60,766 | 54,293 | ||||||||
Treasury stock, at cost | 0 | (512 | ) | |||||||
Total stockholders’ equity | 88,441 | 80,664 | ||||||||
$ | 145,452 | $ | 133,437 | |||||||
The accompanying notes are an integral part of these condensed financial statements.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended | ||||||||||
March 31, | ||||||||||
2003 | 2002 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 6,473 | $ | 5,971 | ||||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | ||||||||||
Depreciation | 2,970 | 2,969 | ||||||||
Amortization | 394 | 1,149 | ||||||||
Cumulative effect of accounting change, net | 581 | — | ||||||||
Other | (125 | ) | (562 | ) | ||||||
Change in assets and liabilities: | ||||||||||
Accounts receivable | (11,243 | ) | (804 | ) | ||||||
Inventories | (7,715 | ) | 8,627 | |||||||
Other assets | 227 | (580 | ) | |||||||
Accounts payable | (5,226 | ) | (5,488 | ) | ||||||
Accrued expenses | 1,069 | 3,026 | ||||||||
Net cash provided by (used for) operating activities | (12,595 | ) | 14,308 | |||||||
Cash flows from investing activities: | ||||||||||
Purchases of property and equipment | (1,390 | ) | (1,117 | ) | ||||||
Net cash used for investing activities | (1,390 | ) | (1,117 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Exercise of employee stock options | 242 | — | ||||||||
Sale of stock to stock purchase program | 1,079 | 910 | ||||||||
Proceeds from borrowings | 59,096 | 61,006 | ||||||||
Payments under borrowings | (50,906 | ) | (74,119 | ) | ||||||
Net cash provided by (used for) financing activities | 9,511 | (12,203 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | (4,474 | ) | 988 | |||||||
Cash and cash equivalents at beginning of period | 6,506 | 79 | ||||||||
Cash and cash equivalents at end of period | $ | 2,032 | $ | 1,067 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||
Cash paid during the period for: | ||||||||||
Interest | $ | 1,933 | $ | 2,086 | ||||||
Income taxes | 3,578 | 2,472 | ||||||||
Noncash activities: | ||||||||||
None |
The accompanying notes are an integral part of these condensed financial statements.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Accounting Principles
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended June 30, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in our 2002 Annual Report.
Note 2 – Impact of New Accounting Standards
Effective July 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Please refer to Note 6 for information regarding goodwill and other intangible assets and the impact the adoption of this statement had on our condensed consolidated financial statements.
In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” effective for fiscal years beginning after June 15, 2002. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We adopted SFAS No. 143 during the first quarter of fiscal 2003. The adoption of this statement did not have a material effect on our consolidated financial position or statements of income, stockholders’ equity and cash flows.
In August 2001, FASB issued SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” effective for fiscal years beginning after December 15, 2001. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. We adopted SFAS No. 144 during the first quarter of fiscal 2003. The adoption of this statement did not have a material effect on our consolidated financial position or statements of income, stockholders’ equity and cash flows.
In July 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities, such as restructurings, terminating employees involuntarily and consolidating facilities. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. We adopted SFAS No. 146 during the quarter ended March 31, 2003. The adoption of this statement did not have a material effect on our consolidated financial position or statements of income, stockholders’ equity and cash flows.
In December 2002, FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation. This standard also amends disclosure provisions to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. We do not currently plan to adopt the fair value method; however, we did adopt the disclosure provisions of SFAS No. 148, which became effective for financial statements for fiscal years ending after December 15, 2002.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In November 2002, the FASB issued Financial Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires certain guarantees to be recorded at fair value and requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote. Generally, FIN 45 applies to certain types of financial guarantees that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying asset, liability, or an equity security of the guaranteed party; performance guarantees involving contracts which require the guarantor to make payments to the guaranteed party based on another entity’s failure to perform under an obligating agreement; indemnification agreements that contingently require the guarantor to make payments to an indemnified party based on changes in an underlying asset, liability, or an equity security of the indemnified party; or indirect guarantees of the indebtedness of others. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Disclosure requirements under FIN 45 are effective for financial statements ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to FIN 45’s scope, including guarantees issued prior to FIN 45. We do not expect that FIN 45 will have a material effect on our consolidated financial position or statements of income, stockholders’ equity and cash flows.
Note 3 – Comprehensive Income
The following table illustrates the components of comprehensive income, net of related tax, for the three and nine months ended March 31, 2003 and 2002 (in thousands).
Three Months | Nine Months | ||||||||||||||||
Ended | Ended | ||||||||||||||||
March 31, | March 31, | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income | $ | 1,032 | $ | 598 | $ | 6,473 | $ | 5,971 | |||||||||
Foreign currency translation adjustments | 344 | (23 | ) | 109 | (329 | ) | |||||||||||
Fair value of interest rate swap | 99 | 199 | (125 | ) | (727 | ) | |||||||||||
Comprehensive income | $ | 1,475 | $ | 774 | $ | 6,457 | $ | 4,915 | |||||||||
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 – Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts).
Three Months | Nine Months | |||||||||||||||||
Ended | Ended | |||||||||||||||||
March 31, | March 31, | |||||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||
Numerator for basic and diluted earnings per share: | ||||||||||||||||||
Net income before cumulative effect of accounting change | $ | 1,032 | $ | 598 | $ | 7,054 | $ | 5,971 | ||||||||||
Cumulative effect of accounting change for SFAS No. 142, net of income taxes | — | — | (581 | ) | — | |||||||||||||
Net income | $ | 1,032 | $ | 598 | $ | 6,473 | $ | 5,971 | ||||||||||
Denominator: | ||||||||||||||||||
Weighted average shares outstanding | 5,958 | 5,785 | 5,913 | 5,746 | ||||||||||||||
Contingently issuable shares | 18 | 15 | 17 | 14 | ||||||||||||||
Denominator for basic earnings per share — weighted average shares | 5,976 | 5,800 | 5,930 | 5,760 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||
Employee stock options | 76 | 47 | 74 | 27 | ||||||||||||||
Director stock options | 17 | 6 | 16 | 3 | ||||||||||||||
Dilutive potential common shares | 93 | 53 | 90 | 30 | ||||||||||||||
Denominator for diluted earnings per | ||||||||||||||||||
share — adjusted weighted — average shares | 6,069 | 5,853 | 6,020 | 5,790 | ||||||||||||||
Earnings per common share | ||||||||||||||||||
Before cumulative effect of accounting change | $ | 0.17 | $ | 0.10 | $ | 1.19 | $ | 1.04 | ||||||||||
Cumulative effect of accounting change | — | — | (0.10 | ) | — | |||||||||||||
$ | 0.17 | $ | 0.10 | $ | 1.09 | $ | 1.04 | |||||||||||
Earnings per common share — assuming dilution | ||||||||||||||||||
Before cumulative effect of accounting change | $ | 0.17 | $ | 0.10 | $ | 1.18 | $ | 1.03 | ||||||||||
Cumulative effect of accounting change | — | — | (0.10 | ) | — | |||||||||||||
$ | 0.17 | $ | 0.10 | $ | 1.08 | $ | 1.03 | |||||||||||
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 – Disclosures about Segments of an Enterprise and Related Information
We sell our products to a variety of retail outlets, including mass merchants, national chain stores, major department stores, men’s and women’s specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores and the retail exchange operations of the United States military. To facilitate our internal operations as well as our customer relationships, we organize our products along men’s and women’s product lines. As a result, we have two reportable segments: men’s accessories, consisting of belts, wallets, suspenders and other small leather goods and women’s accessories, consisting of belts, wallets, handbags, socks, scarves, hats and hair accessories. We allocate general corporate expenses to each segment based on the respective segment’s asset base. We allocate depreciation and amortization expense related to assets recorded on our corporate accounting records to each segment as described above. We measure profit or loss on each segment based on income or loss before taxes utilizing the accounting policies consistent in all material respects with those described in Note 1 of our 2002 Annual Report. No inter-segment revenue is recorded.
The following table sets forth information regarding operations and assets by reportable segment (in thousands).
Three Months Ended | Nine Months Ended | ||||||||||||||||
March 31, | March 31, | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
Revenue from external customers: | |||||||||||||||||
Men’s accessories | $ | 22,288 | $ | 24,585 | $ | 83,136 | $ | 81,870 | |||||||||
Women’s accessories | 24,723 | 22,044 | 90,125 | 79,472 | |||||||||||||
$ | 47,011 | $ | 46,629 | $ | 173,261 | $ | 161,342 | ||||||||||
Operating income (1): | |||||||||||||||||
Men’s accessories | 1,147 | 1,043 | 6,657 | 6,482 | |||||||||||||
Women’s accessories | 1,145 | 633 | 6,853 | 5,608 | |||||||||||||
$ | 2,292 | $ | 1,676 | $ | 13,510 | $ | 12,090 | ||||||||||
Interest expense | (613 | ) | (720 | ) | (2,020 | ) | (2,355 | ) | |||||||||
Other income (2) | 15 | 28 | 61 | 40 | |||||||||||||
Income before income taxes and cumulative effect of accounting change | $ | 1,694 | $ | 984 | $ | 11,551 | $ | 9,775 | |||||||||
Depreciation and amortization expense: | |||||||||||||||||
Men’s accessories | $ | 596 | $ | 812 | $ | 1,799 | $ | 2,527 | |||||||||
Women’s accessories | 475 | 483 | 1,430 | 1,490 | |||||||||||||
$ | 1,071 | $ | 1,295 | $ | 3,229 | $ | 4,017 | ||||||||||
Capital expenditures: | |||||||||||||||||
Men’s accessories | $ | 46 | $ | — | $ | 249 | $ | — | |||||||||
Women’s accessories | 32 | 259 | 177 | 710 | |||||||||||||
Corporate | 203 | 305 | 964 | 407 | |||||||||||||
$ | 281 | $ | 564 | $ | 1,390 | $ | 1,117 | ||||||||||
(1) | Operating income consists of net sales less cost of sales and specifically identifiable selling, general and administrative expenses. | |
(2) | Other income includes royalty income on corporate tradenames and other income not specifically identifiable to a segment. |
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 – Goodwill and Other Intangible Assets
Effective July 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” This statement changed the accounting for goodwill and indefinite-lived intangible assets from an amortization approach to an impairment-only approach. The SFAS No. 142 goodwill impairment model is a two-step process. The first step compares the fair value of a reporting unit that has goodwill assigned to it, to its carrying value. We estimate the fair value of a reporting unit using discounted cash flow analysis. If the fair value of the reporting unit is determined to be less than its carrying value, a second step is performed to compute the amount of goodwill impairment, if any. Step two allocates the fair value of the reporting unit to the reporting unit’s net assets other than goodwill. The excess of the fair value of the reporting unit over the amounts assigned to its net assets other than goodwill is considered the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared to the carrying value of its goodwill. Any shortfall represents the amount of goodwill impairment.
Using the SFAS No. 142 approach described above, we recorded a transitional goodwill impairment charge during the first quarter of fiscal 2003 of $950,000 ($581,000 net of tax), presented as a cumulative effect of accounting change. This charge related to our women’s segment of products.
The transitional impairment charge resulted from application of the new impairment methodology introduced by SFAS No. 142. Previous accounting rules incorporated a comparison of carrying value to undiscounted cash flows, whereas new rules require a comparison of carrying value to fair value, which is lower. Under previous requirements, no goodwill impairment would have been recorded on July 1, 2002.
Pursuant to SFAS No. 142, goodwill and indefinite-lived intangible assets must be tested for impairment annually at the same time every year, and in between annual testing dates if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. In conjunction with the adoption of SFAS No. 142, we reassessed the useful lives and the classification of our finite-lived acquired intangible assets and determined that no revisions were necessary. The following table illustrates the gross carrying amount and accumulated amortization of our acquired intangible assets as of March 31, 2003 and June 30, 2002 (in thousands).
March 31, | June 30, | ||||||||
2003 | 2002 | ||||||||
Amortized intangible assets (various, principally tradenames): | |||||||||
Gross carrying amount | $ | 8,774 | $ | 8,774 | |||||
Accumulated amortization | $ | (3,765 | ) | $ | (3,371 | ) | |||
Net amortized intangible assets | $ | 5,009 | $ | 5,403 | |||||
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 – Goodwill and Other Intangible Assets (continued)
Amortization expense for acquired finite-lived intangible assets during the nine months ended March 31, 2003 was $394,000. The following table illustrates our estimated amortization expense for the remainder of fiscal 2003 through June 30, 2007.
Estimated amortization expense : | |||||
Fiscal year ending 6/30/03 | $ | 112,000 | |||
Fiscal year ending 6/30/04 | 394,000 | ||||
Fiscal year ending 6/30/05 | 361,000 | ||||
Fiscal year ending 6/30/06 | 361,000 | ||||
Fiscal year ending 6/30/07 | 361,000 |
The following table reconciles net income, earnings per common share and earnings per share, assuming dilution, adjusted to exclude amortization expense recognized in such periods related to goodwill (in thousands except per share amounts).
Three Months | Nine Months | ||||||||||||||||
Ended | Ended | ||||||||||||||||
March 31, | March 31, | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
Reported net income before cumulative effect of accounting change | $ | 1,032 | $ | 598 | $ | 7,054 | $ | 5,971 | |||||||||
Add back after-tax amounts: | |||||||||||||||||
Goodwill amortization | — | 155 | — | 468 | |||||||||||||
Adjusted net income before cumulative effect of accounting change | $ | 1,032 | $ | 753 | $ | 7,054 | $ | 6,439 | |||||||||
Earnings per common share before cumulative effect of accounting change: | |||||||||||||||||
Reported net income | $ | 0.17 | $ | 0.10 | $ | 1.19 | $ | 1.04 | |||||||||
Goodwill amortization | — | 0.03 | — | 0.08 | |||||||||||||
Adjusted basic earnings per common share before cumulative effect of accounting change | $ | 0.17 | $ | 0.13 | $ | 1.19 | $ | 1.12 | |||||||||
Earnings per share-assuming dilution before cumulative effect of accounting change: | |||||||||||||||||
Reported net income | $ | 0.17 | $ | 0.10 | $ | 1.18 | $ | 1.03 | |||||||||
Goodwill amortization | — | 0.03 | — | 0.08 | |||||||||||||
Adjusted earnings per share-assuming dilution before cumulative effect of accounting change | $ | 0.17 | $ | 0.13 | $ | 1.18 | $ | 1.11 | |||||||||
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 – Goodwill and Other Intangible Assets (continued)
The following table illustrates the changes in the carrying amount of goodwill by reportable segment for the nine months ended March 31, 2003.
June 30, | Impairment | March 31, | ||||||||||||||
2002 | Losses | Other (1) | 2003 | |||||||||||||
Men’s accessories | $ | 9,733 | $ | — | $ | 33 | $ | 9,766 | ||||||||
Women’s accessories | 2,734 | (950 | ) | — | 1,784 | |||||||||||
Total | $ | 12,467 | $ | (950 | ) | $ | 33 | $ | 11,550 | |||||||
(1) Difference due to foreign currency translation adjustments.
Note 7 – Stock-Based Compensation
Subject to the approval of our board of directors, we grant stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair value of the shares at the date of grant. We account for stock option grants using the intrinsic value method in accordance with the Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. The following schedule reflects the impact on net income if we had applied the fair value recognition provisions of SFAS No. 123,Accounting for Stock Based Compensation, to stock based employee compensation for the three and nine month periods ended March 31, 2003 and 2002:
Three Months | Nine Months | ||||||||||||||||
Ended | Ended | ||||||||||||||||
March 31 | March 31 | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income: | |||||||||||||||||
As reported | $ | 1,032 | $ | 598 | $ | 6,473 | $ | 5,971 | |||||||||
Pro forma | $ | 908 | $ | 442 | $ | 6,101 | $ | 5,502 | |||||||||
Earnings per share: | |||||||||||||||||
As reported | $ | 0.17 | $ | 0.10 | $ | 1.09 | $ | 1.04 | |||||||||
Pro forma | $ | 0.15 | $ | 0.08 | $ | 1.03 | $ | 0.96 | |||||||||
Earnings per share-assuming dilution: | |||||||||||||||||
As reported | $ | 0.17 | $ | 0.10 | $ | 1.08 | $ | 1.03 | |||||||||
Pro forma | $ | 0.15 | $ | 0.08 | $ | 1.01 | $ | 0.95 |
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Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 – Stock-Based Compensation (continued)
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if we had accounted for the stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for fiscal 2003 and 2002: dividend yield of 0.0%; expected volatility of .270% and .334% for 2003 and 2002, respectively; a risk-free interest rate of 5.25% and 6.50% for fiscal 2003 and 2002, respectively; and an expected holding period of seven years. Using these assumptions for the options granted during fiscal 2003 and 2002, the weighted-average grant date fair value of such options was $4.76 and $2.80, respectively.
The Black-Scholes valuation models are used in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and the average life of options. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options.
Note 8 – Employee Benefit Plan
Effective January 1, 2003, we adopted the Tandy Brands Accessories, Inc. Supplemental Executive Retirement Plan (the “SERP”) for certain of its executive officers. The SERP provides that upon retirement a participant will receive annual benefits (or a discounted lump-sum at the time of retirement in lieu of annual benefits) which, when added to Social Security retirement benefits, generally equal the participant’s target percentage of 60% of the average of the highest annual salary and bonus for three complete fiscal years over the last ten fiscal years of the participant’s employment. If the participant retires before the age of 65, the benefit is reduced by 5% for each year the participant’s age is less than 65. For the three month period ended March 31, 2003, we recorded expenses related to the SERP of approximately $75,000.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
We are a leading designer, manufacturer and marketer of branded men’s, women’s and children’s accessories, including belts and small leather goods such as wallets. Our product line also includes handbags, socks, scarves, gloves, hats, hair accessories, suspenders, cold weather accessories and sporting goods accessories. We market our merchandise under a broad portfolio of nationally recognized licensed and proprietary brand names, including DOCKERS®, LEVI’S®, JONES NEW YORK®, PERRY ELLIS®, ROLFS®, HAGGAR®, WOOLRICH®, JORDACHE®, INDIAN MOTORCYCLE®, BUGLE BOY®, CANTERBURY®, PRINCE GARDNER®, PRINCESS GARDNER®, AMITY®, DON LOPER®, ACCESSORY DESIGN GROUP®, TEX TAN® and TIGER®, as well as private brands for major retail customers. We sell our products to a variety of retail outlets, including mass merchants, national chain stores, major department stores, men’s and women’s specialty stores, catalog retailers, grocery stores, drug stores, golf pro shops, sporting goods stores and the retail exchange operations of the United States military.
RESULTS OF OPERATIONS
Three and Nine Months Ended March 31, 2003 Compared to the Three and Nine Months Ended March 31, 2002
Net Sales and Gross Margins
The following table illustrates sales and gross margin data from our reportable segments for the three and nine months ended March 31, 2003 compared to the same period last year.
Three Months Ended | Nine Months Ended | ||||||||||||||||
March 31, | March 31, | ||||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net sales: | |||||||||||||||||
Men’s accessories | $ | 22,288 | $ | 24,585 | $ | 83,136 | $ | 81,870 | |||||||||
Women’s accessories | 24,723 | 22,044 | 90,125 | 79,472 | |||||||||||||
Total net sales | $ | 47,011 | $ | 46,629 | $ | 173,261 | $ | 161,342 | |||||||||
Gross margin: | |||||||||||||||||
Men’s accessories | $ | 8,426 | $ | 8,914 | $ | 31,388 | $ | 30,618 | |||||||||
Women’s accessories | 8,086 | 7,361 | 29,138 | 25,906 | |||||||||||||
Total gross margin | $ | 16,512 | $ | 16,275 | $ | 60,526 | $ | 56,524 | |||||||||
Gross margin as a percentage of sales: | |||||||||||||||||
Men’s accessories | 37.8 | % | 36.3 | % | 37.8 | % | 37.4 | % | |||||||||
Women’s accessories | 32.7 | % | 33.4 | % | 32.3 | % | 32.6 | % | |||||||||
Total | 35.1 | % | 34.9 | % | 34.9 | % | 35.0 | % |
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For the three-month period ended March 31, 2003, net sales increased 0.8% to $47,011,000 compared to net sales of $46,629,000 for the same period last year. Net sales of men’s accessories decreased 9.3% for the three month period ended March 31, 2003 compared to the same period last year. The shortfall was attributable to decreased consumer traffic at retail stores during the third quarter as well as lower than planned inventory reorders due to weak holiday sales results. Net sales of women’s accessories increased 12.1% for the three month period ended March 31, 2003 compared to the same period last year. For the third consecutive quarter, results were particularly strong in our women’s department store business with small leather goods and branded belts, such as LEVI’S® and DOCKERS®, and our Rolfs® handbags selling well. Women’s mass merchant accessories generated especially strong results through the sale of handbags, socks, fashion hosiery and other accessories that successfully reflected the latest fashion trends. For the nine-month period ended March 31, 2003, net sales increased 7.4% to $173,261,000 compared to net sales of $161,342,000 for the same period last year. Net sales of men’s accessories increased 1.6% for the nine month period ended March 31, 2003 compared to the same period last year. This sales increase was attributable to higher men’s mass merchant accessories sales during the first two quarters of fiscal 2003. Net sales of women’s accessories increased 13.4% for the nine month period ended March 31, 2003 compared to the same period last year. This sales increase was attributable to women’s accessories sales increases in both mass merchant and department stores.
Gross margins increased by $237,000 for the three month period ended March 31, 2003, or 1.5% compared to the same period last year. As a percentage of sales, gross margins increased 0.2% for the three month period ended March 31, 2003, compared to the same period last year. This improvement was due to an increase in the higher margin department store sales of men’s and women’s branded small leather goods and belts sales compared to the same period last year. For the nine-month period ended March 31, 2003 the gross margin percentage decreased 0.1% compared to the same period last year. The overall decrease was due to a greater sales mix weighted towards men’s and women’s mass merchant accessories during the first quarter of fiscal 2003, higher than anticipated customer allowances, and direct sales shipments of women’s accessories to Payless Shoes.
Operating Expenses
Selling, general and administrative expenses for the three months ended March 31, 2003 decreased by $155,000 compared to the same period last year due to better than anticipated expense control. For the nine-month period ended March 31, 2003, selling, general and administrative expenses increased $3,370,000 compared to the same period of the prior year. The increase resulted primarily from nonrecurring costs associated with the implementation of distribution software in our Dallas, Texas distribution center totaling $290,000 and higher compensation expenses, including severance costs totaling $430,000, and management bonus expenses which exceeded that of the prior year by $448,000. Other expense increases were variable costs related to increased sales during the nine-month period ended March 31, 2003, as compared to the prior year.
Depreciation and amortization expenses as a percentage of net sales for the three and nine months ended March 31, 2003 decreased 0.4% and 0.6%, respectively, compared to the same periods of the prior year. We attribute this decrease primarily to the adoption of SFAS No. 142 “Goodwill and Other Intangible Assets,” in which goodwill is no longer amortized (see note 6 to our condensed consolidated financial statements). Goodwill amortization expense for the same three and nine month periods in the prior year was approximately $255,000 and $765,000, respectively.
Interest expense for the three and nine month periods ended March 31, 2003 decreased $107,000 and $335,000, respectively, compared to the same periods last year. This decrease primarily relates to lower interest rates as well as lower debt levels compared to the same periods last year.
The effective tax rate for the three and nine months ended March 31, 2003, was 38.9%, which is consistent with the same periods last year.
Net income for the three month period ended March 31, 2003 increased 72.6% to $1,032,000, or $.17 per diluted share, compared to net income of $598,000, or $.10 per diluted share, for the same period in the prior year. Net income, before the cumulative effect of accounting change resulting from the adoption of SFAS No. 142, for the nine month period ended March 31, 2003 increased 18.1% to $7,054,000, or $1.18 per diluted share, compared to net income of $5,971,000, or $1.03 per diluted share, for the same period last year.
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In June 2001, FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the new rules, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed annually for impairment. Separable intangible assets that do not have an indefinite life will continue to be amortized over their useful lives.
As discussed in our 2002 Annual Report, the required adoption of SFAS No. 142 is considered a change in accounting principle and the cumulative effect of adopting this standard resulted in a non-cash after-tax charge in the first quarter of fiscal 2003 of $581,000, or $(0.10) per diluted share. This amount does not affect our on-going operations. The adoption of the new accounting standard will result in an annual reduction in amortization expense of approximately $1 million.
Net income, after the cumulative effect of accounting change resulting from the adoption of SFAS No. 142, for the nine-month period ended March 31, 2003 was $6,473,000 or $1.08 per diluted share, compared to net income of $5,971,000, or $1.03 per diluted share, for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 2003, our operating activities used cash of $12,595,000 compared to providing cash of $14,308,000 for the same period last year. The cash provided from operations during fiscal 2002 was the result of an introduction of improved inventory control measures. The usage of cash during the nine months ended March 31, 2003 was attributable to the timing of spring season inventory procurement and accounts receivable collections related to Christmas holiday sales as well as shipments completed during the third quarter of fiscal 2003.
Capital expenditures totaled $1,390,000 for the nine months ended March 31, 2003, an increase of $273,000 from the same period last year. We attribute this increase to the implementation of a distribution software application during the first and second quarters of fiscal 2003. We anticipate that our capital expenditures for fiscal 2003 will approximate our capital investments of property and equipment for fiscal 2002. Capital commitments for the remainder of fiscal 2003 include additional equipment for our distribution facility in Dallas, Texas, as well as additional hardware and software applications. We expect to fund such capital commitments through cash flows from operations and drawing on our existing credit facility.
Generally, our primary sources of liquidity are cash flows from operations and our credit facility. We have an $80,000,000 committed secured revolving credit facility, which can be used for seasonal borrowings and letters of credit. This credit facility is secured by substantially all of our assets along with our subsidiaries’ assets and requires us to maintain certain financial covenants. If we do not maintain these covenants, our liquidity position could be adversely impacted. Our borrowings under our credit facility were $38,190,000 as of March 31, 2003, and $34,287,000 as of March 31, 2002. As of March 31, 2003, we had approximately $37,388,000 of available credit under our credit facility.
We have never paid a cash dividend on our common stock. We currently intend to retain earnings for the foreseeable future to provide funds for the expansion of our business and the reduction of debt. Our existing credit facility restricts our ability to pay dividends.
We believe we have adequate financial resources and access to sufficient credit lines to satisfy our future working capital needs.
OFF BALANCE SHEET ARRANGEMENTS
We do not have transactions, arrangements or relationships with “special purpose” entities, nor do we have any off balance sheet debt.
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CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for our conclusions. We continually evaluate the information used to make these estimates as the business and economic environment changes. Actual results may differ from these estimates under different assumptions or conditions. The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered most critical are as follows:
Revenues
We recognize revenue when merchandise is shipped, and title to the goods has passed, to the customer. We record allowances, including cash discounts, in-store customer allowances, cooperative advertising allowances and customer returns, at the time the revenue is recognized based upon historical experience, current trends in the retail industry and individual customer and product experience.
Inventories
Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first-in, first-out basis) or market. Cost includes materials, direct and indirect labor and factory overhead. Market, with respect to raw materials, is replacement cost; and for work-in-process and finished goods, it is net realizable value. If circumstances arise in which the market value of items in inventory declines below cost, an inventory markdown would be estimated and charged to expense in the period identified. We closely monitor fashion trend items and anticipate additional inventory markdowns if market indications in fashion trends justify further reserves.
Goodwill
We adopted the provisions of SFAS No. 142, effective July 1, 2002. This statement changed the accounting for goodwill and indefinite-lived intangible assets from an amortization approach to an impairment-only approach. The SFAS No. 142 goodwill impairment model is a two-step process. The first step compares the fair value of a reporting unit that has goodwill assigned to it, to its carrying value. We estimate the fair value of a reporting unit using discounted cash flow analysis. If the fair value of the reporting unit is determined to be less than its carrying value, a second step is performed to compute the amount of goodwill impairment, if any. Step two allocates the fair value of the reporting unit to the reporting unit’s net assets other than goodwill. The excess of the fair value of the reporting unit over the amounts assigned to its net assets other than goodwill is considered the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared to the carrying value of its goodwill. Any shortfall represents the amount of goodwill impairment.
We continually evaluate whether events and circumstances have occurred that indicate the remaining balance of goodwill may not be recoverable. In evaluating impairment, we estimate the sum of the expected future cash flows derived from such goodwill. Such evaluations for impairment are significantly impacted by estimates of future revenues, costs and expenses and other factors.
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Derivatives
Our risk management policy as it relates to derivative investments is to mitigate, subject to market conditions, against interest rate risk. We do not enter into any derivative investments for the purpose of speculative investment. We reevaluate our overall risk management philosophy as business conditions arise.
SEASONALITY
Our quarterly sales, net income and use of cash results are fairly consistent throughout the fiscal year, with a seasonal increase during the second quarter.
INFLATION
Although our operations are affected by general economic trends, we do not believe inflation has had a material effect on our results of operations.
WEBSITE ACCESS TO COMPANY REPORTS
Our website address is “www.tandybrands.com.” Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge through our website, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.
FORWARD-LOOKING STATEMENTS
This Form 10-Q may contain forward looking statements that are based on current expectations, estimates and projections about the industry in which we operate, management’s beliefs, and assumptions made by management. In addition, other written or oral statements which constitute forward-looking statements may be made by or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” or variations of such words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to interest rate risk on our long-term debt. We manage our exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition, we have hedged our exposure to changes in interest rates on a portion of our variable debt by entering into an interest rate swap agreement to lock in a fixed interest rate for a portion of these borrowings. At March 31, 2003, our borrowings under our credit facility totaled $38,190,000, bearing a weighted-average interest rate of 5.26%. On July 1, 2001, we entered into a three year interest rate swap agreement with Wells Fargo Bank, N.A., which expires on June 27, 2004, converting $30,000,000 of outstanding indebtedness from a variable to a fixed interest rate. The average receive rate is based on a 90-day LIBOR rate. At March 31, 2003, the receive rates related to the interest rate swap were 1.29% and the pay rates related to interest rate swap were 5.60%. Interest differentials paid or received under the swap agreement are reflected as an adjustment to interest expense when paid. The interest rate swap agreement represents a valid cash flow hedge investment under SFAS No. 133. As such, during fiscal 2003 and 2002, changes in the fair value of the interest rate swap were recognized as other comprehensive income with the fair value at March 31, 2003 approximating ($1,905,000). The potential impact of market conditions on the fair value of our indebtedness is not expected to be material. Given that such lines of credit bear interest at floating market interest rates, the fair value of amounts borrowed thereunder approximates carrying value.
We are also exposed to market risk with respect to changes in the global price level of certain commodities used in the production of our products. We routinely purchase leather hides during the year for use in the manufacture of men’s belts. We also purchase a substantial amount of leather items from third-party suppliers. An unanticipated material increase in the market price of leather could increase the cost of these products to us and therefore have a negative effect on our results of operations.
ITEM 4. Controls and Procedures
Within the 90-day period prior to the date of filing this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our Exchange Act filings.
There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out our evaluation.
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PART II — OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) | Exhibits. |
A list of exhibits filed as part of this report is set forth in the Exhibit Index, which immediately precedes such exhibits and is incorporated herein by reference.
(b) | Reports on Form 8-K. |
We filed a Form 8-K on January 22, 2003 to report the issuance of the press release announcing our financial results for the second quarter of fiscal 2003.
We filed a Form 8-K on April 17, 2003 to report the issuance of the press release announcing our financial results for the third quarter of fiscal 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TANDY BRANDS ACCESSORIES, INC. (Registrant) | ||||
/s/ J.S.B. Jenkins J.S.B. Jenkins President and Chief Executive Officer | ||||
/s/ Mark J. Flaherty Mark J. Flaherty Chief Financial Officer | ||||
Date: May 12, 2003 |
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CERTIFICATION BY CHIEF EXECUTIVE OFFICER
I, J.S.B. Jenkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | |
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 | /s/ J.S.B. Jenkins J.S.B. Jenkins Chief Executive Officer |
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CERTIFICATION BY CHIEF FINANCIAL OFFICER
I, Mark J. Flaherty, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | |
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 | /s/ Mark J. Flaherty Mark J. Flaherty Chief Financial Officer |
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EXHIBIT INDEX
Incorporated by Reference | ||||||||||||
(if applicable) | ||||||||||||
Exhibit Number and Description | Form | Date | File No. | Exhibit | ||||||||
(3) | Articles of Incorporation and Bylaws | |||||||||||
3.1 | Certificate of Incorporation of Tandy Brands Accessories, Inc. | S-1 | 11/02/90 | 33-37588 | 3.1 | |||||||
3.2 | Bylaws of Tandy Brands Accessories, Inc. | S-1 | 11/02/90 | 33-37588 | 3.2 | |||||||
3.3 | Amendment No. 1 to Bylaws of Tandy Brands Accessories, Inc. | 10-Q | 5/10/02 | 0-18927 | 3.3 | |||||||
(4) | Instruments defining the rights of security holders, including indentures | |||||||||||
4.1 | Certificate of Designations, Powers, Preferences, and Rights of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc. | S-1 | 12/31/90 | 33-37588 | 4.1 | |||||||
4.2 | Form of Common Stock Certificate of Tandy Brands Accessories, Inc. | S-1 | 12/31/90 | 33-37588 | 4.2 | |||||||
4.3 | Form of Preferred Share Purchase Rights Certificate of Tandy Brands Accessories, Inc. | S-1 | 12/31/90 | 33-37588 | 4.3 | |||||||
4.4 | Form of Rights Certificate of Tandy Brands Accessories, Inc. | 8-K | 11/02/99 | 0-18927 | 4 | |||||||
4.5 | Amended and Restated Rights Agreement, dated October 19, 1999, between Tandy Brands Accessories, Inc. and Bank Boston, N.A. | 8-K | 11/02/99 | 0-18927 | 4 | |||||||
4.6 | Amendment to Rights Agreement, dated October 19, 1999, between Tandy Brands Accessories, Inc. and Fleet National Bank (f.k.a. Bank Boston, N.A.) | 10-Q | 05/10/02 | 0-18927 | 4.7 | |||||||
(10) | Material Contracts | |||||||||||
10.1 | Tandy Brands Accessories, Inc. 1991 Stock Option Plan* | S-1 | 11/02/90 | 33-37588 | 10.8 | |||||||
10.2 | Form of Stock Option Agreement — 1991 Stock Option Plan* | S-1 | 11/02/90 | 33-37588 | 10.9 |
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EXHIBIT INDEX
Incorporated by Reference | ||||||||||||||
(if applicable) | ||||||||||||||
Exhibit Number and Description | Form | Date | File No. | Exhibit | ||||||||||
10.3 | Tandy Brands Accessories, Inc. Benefit Restoration Plan and related Trust Agreement and Amendments Nos. 1 and 2 thereto* | 10-K | 09/25/97 | 0-18927 | 10.14 | |||||||||
10.4 | Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and each of its Directors | S-1 | 12/31/90 | 33-37588 | 10.16 | |||||||||
10.5 | Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and each of its Officers | S-1 | 12/31/90 | 33-37588 | 10.17 | |||||||||
10.6 | Office Lease Agreement, dated March 6, 1991, between John Hancock Mutual Life Insurance Co. and Tandy Brands Accessories, Inc. relating to the corporate offices | 10-K | 09/20/91 | 0-18927 | 10.16 | |||||||||
10.7 | Tandy Brands Accessories, Inc. Non- Qualified Formula Stock Option Plan for Non- Employee Directors* | S-8 | 02/10/94 | 33-75114 | 28.1 | |||||||||
10.8 | Tandy Brands Accessories, Inc. 1993 Employee Stock Option Plan and form of Stock Option Agreement thereunder* | S-8 | 02/10/94 | 33-75114 | 28.2 | |||||||||
10.9 | Tandy Brands Accessories, Inc. Non- Qualified Stock Option Plan for Non-Employee Directors* | S-8 | 02/10/94 | 33-75114 | 28.3 | |||||||||
10.10 | Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors* | S-8 | 06/03/96 | 33-08579 | 99.1 | |||||||||
10.11 | Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan* | 10-Q | 11/05/97 | 0-18927 | 10.23 |
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Incorporated by Reference | ||||||||||||||
(if applicable) | ||||||||||||||
Exhibit Number and Description | Form | Date | File No. | Exhibit | ||||||||||
10.12 | Tandy Brands Accessories, Inc. Employees Investment Plan, as Amended and Restated effective June 1, 2000* | 10-K | 09/26/00 | 0-18927 | 10.39 | |||||||||
10.13 | Credit Agreement, dated as of June 27, 2001, among Tandy Brands Accessories, Inc. as the Borrower, Wells Fargo HSBC Trade Bank, N.A. as Administrative Agent and as Lender, certain Financial Institutions as Lenders and Wells Fargo Bank, N.A. as Arranger | 10-K | 09/25/01 | 0-18927 | 10.34 | |||||||||
10.14 | ISDA Master Agreement, dated as of June 27, 2001, between Tandy Brands Accessories, Inc. and Wells Fargo Bank, N.A | 10-K | 09/25/01 | 0-18927 | 10.35 | |||||||||
10.15 | Tandy Brands Accessories, Inc. Stock Purchase Program (as amended and restated effective October 18, 1991)* | S-8 | 03/27/92 | 33-46814 | 28.1 | |||||||||
10.16 | Limited Consent and Waiver, dated November 5, 2001, between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, N.A. as Administrative Agent under the Agreement | 10-Q | 11/13/01 | 0-18927 | 10.37 | |||||||||
10.17 | Amendment No. 2 to the Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan * | 10-Q | 5/10/02 | 0-18927 | 10.38 | |||||||||
10.18 | Amendment No. 4 to the Tandy Brands Accessories, Inc. Nonqualified Formula Stock Option Plan For Non-Employee Directors * | 10-Q | 5/10/02 | 0-18927 | 10.39 | |||||||||
10.19 | Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Dr. James F. Gaertner* | S-8 | 5/15/02 | 33-88276 | 10.2 |
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Table of Contents
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Incorporated by Reference | ||||||||||||||
(if applicable) | ||||||||||||||
Exhibit Number and Description | Form | Date | File No. | Exhibit | ||||||||||
10.20 | Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Marvin J. Girouard* | S-8 | 5/15/02 | 33-88276 | 10.3 | |||||||||
10.21 | Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Gene Stallings* | S-8 | 5/15/02 | 33-88276 | 10.4 | |||||||||
10.22 | Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Roger R. Hemminghaus* | S-8 | 5/15/02 | 33-88276 | 10.5 | |||||||||
10.23 | Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Colombe M. Nicholas* | S-8 | 5/15/02 | 33-88276 | 10.6 | |||||||||
10.24 | First Amendment to Credit Agreement, dated June 28, 2002, between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, N.A | 10-K | 9/27/02 | 0-18927 | 10.23 | |||||||||
10.25 | Tandy Brands Accessories, Inc. 2002 Omnibus Plan* | 10-Q | 11/12/02 | 0-18927 | 10.24 | |||||||||
10.26 | Tandy Brands Accessories, Inc. Supplemental Executive Retirement Plan* | 10-Q | 2/12/03 | 0-18927 | 10.25 | |||||||||
10.27 | Amendment No. 1 to the Tandy Brands Accessories, Inc. Stock Purchase Program* ** | N/A | N/A | N/A | N/A | |||||||||
(99) | Other Exhibits | |||||||||||||
99.1 | Certification pursuant to Section 906 of Sarbanes-Oxley Act (Chief Executive Officer)** | N/A | N/A | N/A | N/A | |||||||||
99.2 | Certification pursuant to Section 906 of Sarbanes-Oxley Act (Chief Financial Officer)** | N/A | N/A | N/A | N/A |
* | Management contract or compensatory plan | |
** | Filed herewith |
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