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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For the Period Ended December 31, 2000 Commission File Number 0-18927
TANDY BRANDS ACCESSORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2349915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
690 East Lamar Boulevard, Suite 200, Arlington, TX 76011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817)-548-0090
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 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 December 31, 2000
Common stock, $1 par value 5,817,406
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2000
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TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item Page No.
--------
1. Financial Statements 3 - 10
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 14
3 Qualitative and Quantitative Disclosures About Market Risk 15
PART II -- OTHER INFORMATION
Item
4. Submission of Matter to a Vote of Security Holders 15
6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
INDEX TO EXHIBITS 18
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
FILE NUMBER 0-18927
FORM 10-Q
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Six Months
Ended Ended
December 31 December 31
---------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales 56,757 $ 57,566 $ 110,941 $ 110,822
Cost of goods sold 36,567 35,901 71,855 70,273
--------- --------- --------- ---------
Gross margin 20,190 21,665 39,086 40,549
Selling, general and administrative expenses 13,437 12,920 26,943 25,587
Depreciation and amortization 1,134 866 2,192 1,699
--------- --------- --------- ---------
Total operating expenses 14,571 13,786 29,135 27,286
--------- --------- --------- ---------
Operating income 5,619 7,879 9,951 13,263
Interest expense (1,000) (922) (2,021) (1,815)
Royalty income and early termination of
license agreement 17 1,043 34 1,074
--------- --------- --------- ---------
Income before provision for income taxes 4,636 8,000 7,964 12,522
Provision for income taxes 1,788 3,107 3,081 4,861
--------- --------- --------- ---------
Net income $ 2,848 $ 4,893 $ 4,883 $ 7,661
========= ========= ========= =========
Earnings per common share $ 0.51 $ 0.84 $ 0.87 $ 1.32
========= ========= ========= =========
Earnings per common share - assuming dilution $ 0.51 $ 0.83 $ 0.87 $ 1.30
========= ========= ========= =========
Common shares outstanding 5,578 5,802 5,595 5,799
========= ========= ========= =========
Common shares outstanding - assuming dilution 5,582 5,868 5,604 5,871
========= ========= ========= =========
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
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CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31, June 30,
2000 2000
-------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 352 $ 661
Accounts receivable, net 40,166 31,105
Inventories:
Raw materials and work in process 4,617 4,759
Finished goods 54,098 50,581
Other current assets 2,800 2,371
--------- ---------
Total current assets 102,033 89,477
--------- ---------
Property and equipment, at cost 23,786 22,317
Accumulated depreciation (10,575) (9,305)
--------- ---------
Net property and equipment 13,211 13,012
--------- ---------
Other assets:
Goodwill, less amortization 10,957 11,410
Other assets, less amortization 8,224 7,785
--------- ---------
Total other assets 19,181 19,195
--------- ---------
$ 134,425 $ 121,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,329 $ 6,547
Accrued expenses 5,973 4,004
--------- ---------
Total current liabilities 13,302 10,551
--------- ---------
Other liabilities:
Notes payable 46,925 41,075
Other noncurrent liabilities 189 184
--------- ---------
Total other liabilities 47,114 41,259
--------- ---------
Stockholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized, none issued -- --
Common stock, $1 par value, 10,000,000 shares authorized,
5,817,406 shares and 5,808,968 shares issued and outstanding
as of December 31, 2000, and June 30, 2000, respectively 5,818 5,809
Additional paid-in capital 22,353 22,426
Cumulative other comprehensive income (512) (479)
Retained earnings 48,444 43,560
Treasury stock, at cost (2,094) (1,442)
--------- ---------
Total stockholders' equity 74,009 69,874
--------- ---------
$ 134,425 $ 121,684
========= =========
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
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six Months Ended
December 31,
---------------------------
2000 1999
----------- -----------
Cash flows from operating activities:
Net income $ 4,883 $ 7,661
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 1,351 941
Amortization 617 821
Other (88) 49
Change in assets and liabilities:
Accounts receivable (9,061) (7,211)
Inventories (3,375) 2,190
Other assets (1,054) (950)
Accounts payable 782 (2,076)
Accrued expenses 1,974 4,007
-------- --------
Net cash provided by (used for) operating activities (3,971) 5,432
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,469) (997)
Purchase of Frank Spielberg, LLC 0 (3,561)
-------- --------
Net cash used for investing activities (1,469) (4,558)
-------- --------
Cash flows from financing activities:
Exercise of employee stock options 23 37
Sale of stock to stock purchase program 658 791
Purchase of treasury stock (1,400) (859)
Proceeds from borrowings 50,600 51,395
Payments under borrowings (44,750) (50,995)
-------- --------
Net cash provided by financing activities 5,131 369
-------- --------
Net increase (decrease) in cash and cash equivalents (309) 1,243
Cash and cash equivalents at beginning of period 661 180
-------- --------
Cash and cash equivalents at end of period $ 352 $ 1,423
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,622 $ 1,460
Income taxes 2,170 2,530
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
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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 six month periods ended
December 31, 2000, are not necessarily indicative of the results that may be
expected for the year ended June 30, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Tandy
Brands Accessories, Inc. and Subsidiaries Annual Report on Form 10-K for the
year ended June 30, 2000.
NOTE 2 - IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and its
amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The
Statement requires the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are either offset against the
change in fair value of assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The adoption of Statement No.
133, as amended on July 1, 2000, resulted in the cumulative effect of an
accounting change, net of tax, of approximately $308,000 in other comprehensive
income.
The Company's risk management policy as it relates to derivative instruments is
to mitigate, subject to market conditions, against interest rate risk. The
Company does not enter into any derivative instrument for the purposes of
speculative investment. The Company's overall risk management philosophy is
reevaluated as business conditions arise.
The Company is subject to interest rate risk on its long term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company has hedged its exposure to
changes in interest rates on a portion of its variable debt by entering into an
interest rate swap agreement to lock in a fixed interest rate for a portion of
these borrowings. As a result, the Company entered into a five-year interest
rate swap agreement converting $15,000,000 of outstanding indebtedness from a
variable to a fixed interest rate. The average receive rate is based on a 90 day
LIBOR rate. The interest rate swap agreement as a derivative represents a valid
cash flow hedge instrument under Statement No. 133. At December 31, 2000, the
receive and pay rates related to the interest rate swap were 7.75% and 6.52%,
respectively.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the
three and six months ended December 31, 2000 and 1999 are as follows (in
thousands):
Three Months Six Months
Ended Ended
December 31 December 31
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
Net income $ 2,848 $ 4,893 $ 4,883 $ 7,661
Foreign currency translation adjustments 31 51 (105) 73
Cumulative effect of change in accounting
principle - fair value of interest rate swap 308
Changes in the fair value of interest rate swap (235) -- (235)
------- ------- ------- -------
Comprehensive income $ 2,644 $ 4,944 $ 4,851 $ 7,734
======= ======= ======= =======
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - EARNINGS PER SHARE
The following sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
Three Months Six Months
Ended Ended
December 31 December 31
--------------------- ---------------------
2000 1999 2000 1999
------ ------ ------ ------
Numerator for basic and diluted earnings per
share:
Net income $2,848 $4,893 $4,883 $7,661
====== ====== ====== ======
Denominator:
Weighted average shares outstanding 5,564 5,784 5,582 5,782
Contingently issuable shares 14 18 13 17
------ ------ ------ ------
Denominator for basic earnings per
share - weighted average shares 5,578 5,802 5,595 5,799
Effect of dilutive securities:
Employee stock options 4 56 8 61
Director stock options -- 10 1 11
------ ------ ------ ------
Dilutive potential common shares 4 66 9 72
Denominator for diluted earnings per
share - adjusted weighted-average
shares 5,582 5,868 5,604 5,871
====== ====== ====== ======
Basic earnings per share $ 0.51 $ 0.84 $ 0.87 $ 1.32
====== ====== ====== ======
Diluted earnings per share $ 0.51 $ 0.83 $ 0.87 $ 1.30
====== ====== ====== ======
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company sells its 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 and the retail
exchange operations of the United States military. The Company and its
corresponding customer relationships are organized along men's and women's
product lines. As a result, the Company has two reportable segments: (1) men's
accessories consisting of belts, wallets, suspenders and other small leather
goods and (2) women's accessories consisting of belts, wallets, handbags, socks,
scarves, hats and hair accessories. General corporate expenses are allocated to
each segment based on the respective segment's asset base. Depreciation and
amortization expense related to assets recorded on the Company's corporate
accounting records are allocated to each segment as described above. Management
measures profit or loss on each segment based upon income or loss before taxes
utilizing the accounting policies consistent in all material respects with those
described in Note 1 of the Company's 2000 Annual Report. No intersegment revenue
is recorded.
Information regarding operations and assets by segment are as follows (in
thousands):
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Revenue from external customers:
Men's accessories $ 29,908 $ 33,976 $ 60,691 $ 62,060
Women's accessories 26,849 23,590 50,250 48,762
--------- --------- --------- ---------
$ 56,757 $ 57,566 $ 110,941 $ 110,822
========= ========= ========= =========
Operating income(1):
Men's accessories 4,190 6,014 7,888 9,169
Women's accessories 1,429 1,865 2,063 4,094
--------- --------- --------- ---------
$ 5,619 $ 7,879 $ 9,951 $ 13,263
========= ========= ========= =========
Interest expense (1,000) (922) (2,021) (1,815)
Other income(2) 17 1,043 34 1,074
--------- --------- --------- ---------
Income before income taxes $ 4,636 $ 8,000 $ 7,964 $ 12,522
========= ========= ========= =========
Depreciation and amortization expense:
Men's accessories $ 735 $ 570 $ 1,391 $ 1,123
Women's accessories 399 296 801 576
--------- --------- --------- ---------
$ 1,134 $ 866 $ 2,192 $ 1,699
========= ========= ========= =========
Capital expenditures:
Men's accessories $ 148 $ 12 $ 148 $ 42
Women's accessories 282 248 500 261
Corporate 544 427 821 915
--------- --------- --------- ---------
$ 974 $ 687 $ 1,469 $ 1,218
========= ========= ========= =========
(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 the early
termination of a license agreement not specifically identifiable to a
segment.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - STOCK REPURCHASE PROGRAM
On October 17, 2000, the Company's Board of Directors approved a plan to
repurchase, from time to time in the open market or through negotiated
transactions, shares of the Company's common stock at an aggregate purchase
price of up to $2,000,000 (the "repurchase program"). This program is an
extension of the $4,000,000 stock repurchase plan the Company initiated in
October 20, 1999 and extended in April 26, 2000. Any open market purchases will
be at prevailing market prices. The timing of any repurchases will depend on
market conditions, market price, and management's assessment of the Company's
liquidity and cash flow needs. Any repurchased shares will be added to the
Company's treasury shares and may be used for the Company's stock plans and
other corporate purposes. The funds required for the repurchases will be
provided from the Company's current cash balances, operating cash flow, or the
Company's credit facility. During the six-months ended December 31, 2000, the
Company repurchased 197,249 shares of treasury stock under the repurchase
program at a cost of approximately $1,400,000. During the six months ended
December 31, 2000, 89,657 shares of treasury stock were issued to the Company's
employee stock purchase program.
NOTE 7 - SUBSEQUENT EVENT
On January 18, 2001, the Company acquired all of the outstanding common stock of
Stagg Industries, Inc. ("Stagg") for approximately $2,750,000 in cash plus
contingent consideration of up to $250,000. The cash purchase price was provided
by drawing on existing bank lines. Stagg is a distributor and marketer of men's
and children's belts, neckwear, small leather and other accessories to various
department stores and specialty retailers. In conjunction with the purchase, the
Company assumed certain liabilities of which $2,794,000 in bank indebtedness was
immediately retired.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Tandy Brands Accessories, Inc. (the "Company") is 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. The Company's product
line also includes handbags, socks, scarves, hats, hair accessories and
suspenders. The Company's merchandise is marketed under a broad portfolio of
nationally recognized licensed and proprietary brand names, including
DOCKERS(R), JONES NEW YORK(R), FLORSHEIM(R), PERRY ELLIS(R), ROLFS(R),
HAGGAR(R), BUGLE BOY(R), CANTERBURY(R), PRINCE GARDNER(R), PRINCESS GARDNER(R),
AMITY(R), DON LOPER(R), ACCESSORY DESIGN GROUP(R), TEX TAN(R) and TIGER(R), as
well as private brands for major retail customers. The Company sells its
products through all major retail distribution channels throughout the United
States and Canada, including mass merchants, national chain stores, department
stores, men's and women's specialty stores, catalogs, grocery and drug stores.
See Note 7 to the condensed consolidated financial statements for a discussion
of certain subsequent events.
RESULTS OF OPERATIONS
Sales and gross margin data from the Company's segments for the three
and six months ended fiscal 2001 compared to the same period last year were as
follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales:
Men's accessories $ 29,908 $ 33,976 $ 60,691 $ 62,060
Women's accessories 26,849 23,590 50,250 48,762
-------- -------- -------- --------
Total net sales $ 56,757 $ 57,566 $110,941 $110,822
======== ======== ======== ========
Gross margin:
Men's accessories $ 11,908 $ 13,945 $ 23,824 $ 24,677
Women's accessories 8,282 7,720 15,262 15,872
-------- -------- -------- --------
Total gross margin $ 20,190 $ 21,665 $ 39,086 $ 40,549
======== ======== ======== ========
Gross margin as a percentage of sales:
Men's accessories 39.8% 41.0% 39.3% 39.8%
Women's accessories 30.8% 32.7% 30.4% 32.5%
Total 35.6% 37.6% 35.2% 36.6%
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE THREE AND SIX
MONTHS ENDED DECEMBER 31, 1999
NET SALES
For the three-month period ended December 31, 2000, net sales decreased 1.4% to
$56,757,000 as compared to net sales of $57,566,000 for the same period last
year. Net sales of men's accessories decreased 12.0% for the three-month period
ended December 31, 2000 as compared to the same period last year. The decrease
in men's sales was due to the weak retail environment felt industry-wide as well
as customer consolidations and bankruptcies. Net sales of women's accessories
increased 13.8% for the three-month period ended December 31, 2000 as compared
to the same period last year. The increase was attributable to higher sales
volume of women's fashion trend items to certain mass merchants as well as an
increase in women's small leather goods sales to certain department store and
specialty retailers. For the six month period ended December 31, 2000, net sales
increased 0.1% to $110,941,000 as compared to net sales of $110,822,000 for the
same period last year. The sales increases were attributable to higher sales
volume in women's accessories experienced during the second quarter of fiscal
2001.
GROSS MARGINS
Gross margins decreased for the three and six months ended December 31, 2000,
$1,475,000 and $1,463,000, or 6.8% and 3.6%, respectively, as compared to the
same periods for the prior year. As a percentage of sales, gross margins
decreased 2.0% and 1.4% for the three and six months ended December 31, 2000,
respectively, as compared to the same periods last year. The overall decrease
was due to higher sales mix to mass merchants and the close out sales of
women's fashion trend accessories resulting in the recognition of additional
inventory markdowns during the three and six-month periods ended December 31,
2000 of approximately $200,000 and $458,000, respectively, as compared to the
same periods in the prior year.
OPERATING EXPENSES
Selling, general and administrative expenses as a percentage of net sales for
the three and six months ended December 31, 2000 increased 1.3% and 1.2%,
respectively, as compared to the same periods of the prior year. The increase
resulted from higher wages, advertising and rent expenses.
Depreciation and amortization expenses increased $268,000 and $493,000 for the
three and six months ended December 31, 2000, respectively, as compared to the
same periods in the prior year. The increase is attributable to depreciation on
capital expenditures related to leasehold improvements and equipment for the new
distribution facility in Dallas, Texas, for women's accessories as well as
additional hardware and software applications.
Interest expense for the three and six month periods ended December 31, 2000
increased $78,000 and $206,000 as compared to the same periods in the prior
year. The increase is primarily related to higher interest rates during the six
months of fiscal 2001.
The effective tax rates for the three and six months ended December 31, 2000
were 38.6% and 38.7%, respectively, which are consistent with the same periods
in the prior year.
Net income for the three-month period ended December 31, 2000 decreased 41.8% to
$2,848,000, or $0.51 per diluted share, compared to net income of $4,893,000, or
$0.83 per diluted share, for the same period in the prior year. On November 2,
1999, the Company negotiated an early termination of its handbag licensing
agreement with Jones New York. Both the three and six month results during
fiscal 2000 include a one time benefit, including related costs, of $1,000,000
from the termination of this licensing agreement. Excluding the net benefit of
the early license termination, net income for the three-month period ended
December 31,1999 was $4,281,000, or $0.73 per diluted share. The decrease in net
income was primarily due to a lower margin sales mix of women's accessories and
increased selling, general and administrative expenses.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income for the six months ended December 31, 2000 decreased 36.3% to
$4,883,000, or $0.87 per diluted share, compared to net income of $7,661,000, or
$1.30 per diluted share, for the same period in the prior year. Excluding the
net benefit of the early license termination, net income in the prior year six-
month period was $7,049,000, or $1.20 per diluted share. The decrease in net
income was primarily due to a lower margin sales mix of women's accessories and
increased selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Generally, the Company's primary sources of liquidity are cash flows from
operations and the Company's lines of credit. The Company has two unsecured
domestic bank credit lines aggregating $90,000,000, which can be used for
seasonal borrowings and letters of credit. The Company's borrowings under its
credit lines were $46,925,000 and $47,825,000 as of December 31, 2000 and 1999,
respectively.
For the six months ended December 31, 2000, the Company's operating activities
used cash of $3,971,000 compared to providing cash of $5,432,000 for the same
period last year. The increase in the use of cash was attributable to lower net
income and higher inventory and customer display fixture purchases.
Capital expenditures were $1,469,000 for the six months ended December 31, 2000.
The increase of $472,000 over the same prior year period is due to the timing of
capital investments during fiscal 2001. Management anticipates that the
Company's level of capital investment for fiscal 2001 will approximate the prior
year. Capital commitments for fiscal 2001 include additional equipment for the
Company's distribution facility in Dallas, Texas, as well as additional hardware
and software applications.
The Company examines the carrying value of its excess of cost over net assets
acquired (Goodwill) and other intangible assets as current events and
circumstances warrant to determine whether there are any impairment losses. If
indicators of impairment were present in intangible assets used in operations,
and future cash flows were not expected to be sufficient to recover the assets'
carrying amount, an impairment loss would be charged to expense in the period
identified. No event has been identified that would indicate an impairment of
the value of material intangible assets recorded in the consolidated financial
statements.
The Company has never paid a cash dividend on its Common Stock. The Company
currently intends to retain its earnings for the foreseeable future to provide
funds for the expansion of its business. The Company's existing credit
agreements currently contain covenants related to the maintenance of certain
financial ratios, which could impose certain limitations on the payment of
dividends.
See Note 6 of the condensed consolidated financial statements for a discussion
of the Company's stock repurchase program.
The Company believes it has adequate financial resources and access to
sufficient credit facilities to satisfy its future working capital needs.
SEASONALITY
The Company's quarterly sales and net income results are fairly consistent
throughout the fiscal year, with a seasonal increase during the second quarter.
INFLATION
Although the Company's operations are affected by general economic trends, the
Company does not believe that inflation has had a material effect on the results
of operations.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations and other sections of this Form 10-Q contain forward
looking statements that are based on current expectations, estimates and
projections about the industry in which the Company operates, 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
behalf of the Company. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," or variations of such words and
similar expressions are intended to identify such 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 such forward-looking statements. The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. In addition the Company has hedged its exposure to
changes in interest rates on a portion of its variable debt by entering into an
interest rate swap agreement to lock in a fixed interest rate for a portion of
these borrowings. At December 31, 2000, the Company had borrowings under its
credit lines of $46,925,000 bearing a weighted-average interest rate of 7.15%.
The Company entered into a five-year interest rate swap agreement converting
$15,000,000 of outstanding indebtedness from a variable to a fixed interest
rate. The average receive rate is based on a 90 day LIBOR rate. At December 31,
2000, the receive and pay rates related to the interest rate swap were 7.75% and
6.52%, respectively. At December 31, 2000, the fair value of the interest rate
swap agreement was approximately $119,000. Interest differentials to be paid or
received because of the swap agreement are reflected as an adjustment to
interest expense over the related debt period. The potential impact of market
conditions on the fair value of the Company's 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.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of stockholders was held on October 17, 2000.
(b) The matters voted upon were as follows:
(i) The election of three directors in Class III to serve for three-year
terms expiring in 2003, or until their successors are elected and
qualified. The number of votes cast for and against the election of each
nominee, as well as the number of abstentions and broker non-votes with
respect to the election of each nominee were as follows:
Dr. James F. Gaertner
For 5,107,344 Against/Withheld 40,649 Abstain -0- Broker Non-votes -0-
Mr. Gene Stallings
For 5,107,344 Against/Withheld 40,649 Abstain -0- Broker Non-votes -0-
Mr. Roger R. Hemminghaus
For 5,107,344 Against/Withheld 40,649 Abstain -0- Broker Non-votes -0-
Directors whose terms continued after the annual meeting are as follows:
Mr. Marvin J. Girouard
Mr. J.S.B. Jenkins
Mr. C. A. Rundell, Jr.
Ms. Colombe M. Nicholas
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
================================================================================
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
Exhibit No. Description
10.40 Third Amendment to Revolving Credit and
Term Loan Agreement between Tandy Brands
Accessories, Inc. and NationsBank, N.A.
dba Bank of America, N.A. Dated as of
November 14, 2000 and Amendment thereto.
10.41 Second Amendment to the Revolving Credit
Agreement between Tandy Brands
Accessories, Inc. and Wells Fargo HSBC
Trade Bank, N.A., Dated as of December 18,
2000.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on October 16, 2000 regarding the press release
announcing its financial results for the first quarter of fiscal 2001.
The Company filed a Form 8-K on January 18, 2001 regarding the press release
announcing its financial results for the second quarter of fiscal 2001.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
================================================================================
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/ Stanley T. Ninemire
----------------------------------------------
Stanley T. Ninemire
Senior Vice President, Chief Financial Officer
and Treasurer
Date: February 12, 2000
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EXHIBIT INDEX
INCORPORATED BY REFERENCE
(IF APPLICABLE)
EXHIBIT ------------------------------------------
NUMBER DESCRIPTION FORM DATE FILE NO.
------- ----------- --------- ------------- -----------
(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 11/02/90 33-37588
4.2 Form of Common Stock
Certificate of Tandy
Brands Accessories, Inc. S-1 11/02/90 33-37588
4.3 Form of Preferred Share
Purchase Rights Certificate
Of Tandy Brands
Accessories, Inc. S-1 11/02/90 33-37588
4.4 Rights Agreement dated
November 7, 1990,
Between Tandy Brands
Accessories, Inc.
And First National
Bank of Boston S-1 11/02/90 33-37588
(10) Material Contracts
10.40 Third Amendment to N/A N/A N/A
Revolving Credit and Term
Loan Agreement between
Tandy Brands Accessories,
Inc. and NationsBank, N.A.
dba Bank of America, N.A.
Dated as of November 14,
2000 and Amendment thereto.**
10.41 Second Amendment to N/A N/A N/A
the Revolving Credit
Agreement between
Tandy Brands Accessories,
Inc. and Wells HSBC Trade
Bank, N.A., Dated as of
December 18, 2000.**
** Filed herewith.
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