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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 March 31, 2001 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 March 31, 2001
Common stock, $1 par value 5,828,606
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
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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
- ----
6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
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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 Nine Months
Ended Ended
March 31 March 31
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales $ 42,444 $ 39,686 $ 153,385 $ 150,508
Cost of goods sold 27,575 25,665 99,430 95,938
--------- --------- --------- ---------
Gross margin 14,869 14,021 53,955 54,570
Selling, general and administrative expenses 12,035 11,887 38,789 37,335
Depreciation and amortization 1,450 958 3,831 2,796
--------- --------- --------- ---------
Total operating expenses 13,485 12,845 42,620 40,131
--------- --------- --------- ---------
Operating income 1,384 1,176 11,335 14,439
Interest expense (779) (726) (2,800) (2,541)
Royalty income and early termination of
license agreement 28 646 62 1,720
--------- --------- --------- ---------
Income before provision for income taxes 633 1,096 8,597 13,618
Provision for income taxes 245 425 3,326 5,286
--------- --------- --------- ---------
Net income $ 388 $ 671 $ 5,271 $ 8,332
========= ========= ========= =========
Earnings per common share $ 0.07 $ 0.12 $ 0.94 $ 1.44
========= ========= ========= =========
Earnings per common share - assuming dilution $ 0.07 $ 0.12 $ 0.94 $ 1.42
========= ========= ========= =========
Common shares outstanding 5,571 5,763 5,587 5,786
========= ========= ========= =========
Common shares outstanding - assuming dilution 5,572 5,808 5,594 5,849
========= ========= ========= =========
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)
March 31, June 30,
2001 2000
--------- ---------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 345 $ 661
Accounts receivable, net 33,946 31,105
Inventories:
Raw materials and work in process 5,184 4,759
Finished goods 58,357 50,581
Other current assets 2,614 2,371
--------- ---------
Total current assets 100,446 89,477
--------- ---------
Property and equipment, at cost 25,922 22,317
Accumulated depreciation (11,376) (9,305)
--------- ---------
Net property and equipment 14,546 13,012
--------- ---------
Other assets:
Goodwill, less amortization 13,089 11,410
Other assets, less amortization 8,188 7,785
--------- ---------
Total other assets 21,277 19,195
--------- ---------
$ 136,269 $ 121,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 849 $ --
Accounts payable 5,456 6,547
Accrued expenses 5,514 4,004
--------- ---------
Total current liabilities 11,819 10,551
--------- ---------
Other liabilities:
Notes payable 50,000 41,075
Other noncurrent liabilities 347 184
--------- ---------
Total other liabilities 50,347 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,
5,828,606 shares and 5,808,968 shares issued and outstanding
as of March 31, 2001, and June 30, 2000, respectively 5,829 5,809
Additional paid-in capital 22,343 22,426
Cumulative other comprehensive income (952) (479)
Retained earnings 48,831 43,560
Treasury stock, at cost (1,948) (1,442)
--------- ---------
Total stockholders' equity 74,103 69,874
--------- ---------
$ 136,269 $ 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)
Nine Months Ended
March 31,
----------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 5,271 $ 8,332
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 2,859 1,519
Amortization 1,065 1,229
Other (424) (130)
Change in assets and liabilities:
Accounts receivable (1,957) 741
Inventories (5,065) 3,536
Other assets (1,664) (656)
Accounts payable (1,990) (2,900)
Accrued expenses 943 474
-------- --------
Net cash (used for) provided by operating activities (962) 12,145
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (3,005) (1,551)
Purchase of Stagg Industries, Inc. (2,750) --
Purchase of Frank Spielberg, LLC -- (3,561)
-------- --------
Net cash used for investing activities (5,755) (5,112)
-------- --------
Cash flows from financing activities:
Exercise of employee stock options 70 114
Sale of stock to stock purchase program 945 1,129
Purchase of treasury stock (1,584) (1,659)
Proceeds from borrowings 67,995 68,320
Payments under borrowings (61,025) (73,720)
-------- --------
Net cash provided by financing activities 6,401 (5,816)
-------- --------
Net increase (decrease) in cash and cash equivalents (316) 1,217
Cash and cash equivalents at beginning of period 661 180
-------- --------
Cash and cash equivalents at end of period $ 345 $ 1,397
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,575 $ 2,909
Income taxes 3,027 4,855
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 nine month periods ended
March 31, 2001, 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 - RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the fiscal 2001
presentation.
NOTE 3 - 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 has 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 March 31, 2001, the
receive and pay rates related to the interest rate swap were 6.41% 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 4 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three
and nine months ended March 31, 2001 and 2000 are as follows (in thousands):
Three Months Nine Months
Ended Ended
March 31, March 31,
-------------------- --------------------
2001 2000 2001 2000
------- ------- ------- -------
Net income $ 388 $ 671 $ 5,271 $ 8,332
Foreign currency translation adjustments (213) (12) (318) $ 61
Cumulative effect of change in accounting
principle - fair value of interest rate swap 308
Fair Value of interest rate swap (228) -- (463)
------- ------- ------- -------
Comprehensive income $ (53) $ 659 $ 4,798 $ 8,393
======= ======= ======= =======
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - EARNINGS PER SHARE
The following 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,
----------------- -----------------
2001 2000 2001 2000
------ ------ ------ ------
Numerator for basic and diluted earnings per
share:
Net income $ 388 $ 671 $5,271 $8,332
====== ====== ====== ======
Denominator:
Weighted average shares outstanding 5,557 5,750 5,573 5,770
Contingently issuable shares 14 13 14 16
------ ------ ------ ------
Denominator for basic earnings per
share - weighted average shares 5,571 5,763 5,587 5,786
Effect of dilutive securities:
Employee stock options 1 37 6 53
Director stock options -- 8 1 10
------ ------ ------ ------
Dilutive potential common shares 1 45 7 63
Denominator for diluted earnings per
share - adjusted weighted - average
shares 5,572 5,808 5,594 5,849
====== ====== ====== ======
Basic earnings per share $ 0.07 $ 0.12 $ 0.94 $ 1.44
====== ====== ====== ======
Diluted earnings per share $ 0.07 $ 0.12 $ 0.94 $ 1.42
====== ====== ====== ======
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - 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 Nine Months Ended
March 31, March 31,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenue from external customers:
Men's accessories $ 24,997 $ 24,323 $ 85,688 $ 86,383
Women's accessories 17,447 15,363 67,697 64,125
--------- --------- --------- ---------
$ 42,444 $ 39,686 $ 153,385 $ 150,508
========= ========= ========= =========
Operating income(1):
Men's accessories 2,528 2,290 10,216 11,458
Women's accessories (1,144) (1,114) 1,119 2,981
--------- --------- --------- ---------
$ 1,384 $ 1,176 $ 11,335 $ 14,439
========= ========= ========= =========
Interest expense (779) (726) (2,800) (2,541)
Other income(2) 28 646 62 1,720
--------- --------- --------- ---------
Income before income taxes $ 633 $ 1,096 $ 8,597 $ 13,618
========= ========= ========= =========
Depreciation and amortization expense:
Men's accessories $ 967 $ 577 $ 2,524 $ 1,700
Women's accessories 483 381 1,307 1,096
--------- --------- --------- ---------
$ 1,450 $ 958 $ 3,831 $ 2,796
========= ========= ========= =========
Capital expenditures:
Men's accessories $ 598 $ 94 $ 746 $ 136
Women's accessories 326 232 826 493
Corporate 1,212 228 2,033 1,143
--------- --------- --------- ---------
$ 2,136 $ 554 $ 3,605 $ 1,772
========= ========= ========= =========
(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 during
fiscal 2000, the early terminations of license agreements 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 7 - 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 nine-months ended March 31, 2001, the
Company repurchased 222,807 shares of treasury stock under the repurchase
program at a cost of approximately $1,584,000. During the nine months ended
March 31, 2001, 131,503 shares of treasury stock were issued to the Company's
employee stock purchase program.
NOTE 8 - ACQUISITION
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. The purchase method of accounting was used for this
acquisition. The pro-forma effects of this acquisition are not material.
NOTE 9 - SUBSEQUENT EVENT
On April 17, 2001, the Company acquired certain assets of Torel, Inc. ("Torel")
for an aggregate purchase of $861,000 including acquisition-related costs. The
assets included, but were not limited to, wholesale accounts receivable,
wholesale inventory, certain machinery and equipment, and a 76,000 square foot
building located in Yoakum, Texas. The purchase price was comprised of $558,000
in cash and 54,167 shares of Company issued common stock valued at $303,000.
Torel is a manufacturer and distributor of men's belts and sporting goods
accessories. The purchase method of accounting was used for this acquisition.
The pro-forma effects of this acquisition are not material.
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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 9 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
nine months ended fiscal 2001 compared to the same period last year were as
follows (in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales:
Men's accessories $ 24,997 $ 24,323 $ 85,688 $ 86,383
Women's accessories 17,447 15,363 67,697 64,125
-------- -------- -------- --------
Total net sales $ 42,444 $ 39,686 $153,385 $150,508
======== ======== ======== ========
Gross margin:
Men's accessories $ 9,810 $ 9,484 $ 33,633 $ 34,161
Women's accessories 5,059 4,537 20,322 20,409
-------- -------- -------- --------
Total gross margin $ 14,869 $ 14,021 $ 53,955 $ 54,570
======== ======== ======== ========
Gross margin as a percentage of sales:
Men's accessories 39.2% 39.0% 39.3% 39.5%
Women's accessories 29.0% 29.5% 30.0% 31.8%
Total 35.0% 35.3% 35.2% 36.3%
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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
THREE AND NINE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE AND NINE MONTHS
ENDED MARCH 31, 2000
NET SALES
For the three-month period ended March 31, 2001, net sales increased 7.0% to
$42,444,000 as compared to net sales of $39,686,000 for the same period last
year. Net sales of men's accessories increased 2.8% for the three-month period
ended March 31, 2001 as compared to the same period last year. The increase was
due to sales of $2.3 million contributed from the Company's acquisition of
Stagg, (See Note 8.) which offset sales shortfalls experienced by the Company's
core men's business due to the weak retail environment. Net sales of women's
accessories increased 13.6% for the three-month period ended March 31, 2001 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. For the
nine month period ended March 31, 2001, net sales increased 1.9% to $153,385,000
as compared to net sales of $150,508,000 for the same period last year. The
sales increases were attributable to higher sales volume in women's accessories
experienced during the second and third quarters of fiscal 2001.
GROSS MARGINS
Gross margins increased for the three months ended, March 31, 2001, $848,000 or
6.1% as compared to the same period for the prior year. For the nine months
ended, March 31, 2001, gross margins decreased $615,000 or 1.1% as compared to
the same period for the prior year. As a percentage of sales, gross margins
decreased 0.3% and 1.1% for the three and nine months ended March 31, 2001,
respectively, as compared to the same periods last year. The overall decrease
was due to higher women's mass merchant sales at lower than historical gross
margins due to initial spring and summer merchandise rollouts. Additionally,
close out sales of women's fashion trend accessories resulted in the recognition
of additional inventory markdowns during the nine-month period ended March 31,
2001 of approximately $515,000, as compared to the same period in the prior
year.
OPERATING EXPENSES
Selling, general and administrative expenses as a percentage of net sales for
the three months ended March 31, 2001 decreased 1.6% as compared to the same
period of the prior year. The decrease was attributable to non-recurring
expenditures incurred during the three month period March 31, 2000, resulting
from the timing of the wind down of the Jones New York handbag line. For the
nine months ended March 31, 2001, selling, general and administrative expenses
as a percentage of net sales increased 0.5% as compared to the same period of
the prior year. The increase resulted from higher wages, advertising and rent
expenses.
Depreciation and amortization expenses increased $492,000 and $1,035,000 for the
three and nine months ended March 31, 2001, 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 computer hardware and software applications.
Interest expense for the three and nine-month periods ended March 31, 2001
increased $53,000 and $259,000 as compared to the same periods in the prior
year. The increase is primarily related to higher average debt levels in fiscal
2001.
The effective tax rate for the three and nine months ended March 31, 2001 was
38.7%, which is consistent with the same periods in the prior year.
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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 three-month period ended March 31, 2001 decreased 42.2% to
$388,000, or $0.07 per diluted share, compared to net income of $671,000, or
$0.12 per diluted share, for the same period in the prior year. On March 3,
2000, the Company negotiated an early termination of its small leather goods
licensing agreement with Jones New York. Both the three and nine month results
during fiscal 2000 include a one time benefit, including related costs, of
$600,000 from the termination of this licensing agreement. Excluding the net
benefit of the early license termination, net income for the three-month period
ended March 31, 2000 was $304,000, or $0.05 per diluted share. The increase in
net income was primarily due to higher women's accessories sales volume.
Net income for the nine months ended March 31, 2001 decreased 36.7% to
$5,271,000, or $0.94 per diluted share, compared to net income of $8,332,000, or
$1.42 per diluted share, for the same period in the prior year. On March 3, 2000
and November 9, 1999, the Company negotiated an early termination of its Jones
New York handbag and small leather goods licensing agreements, respectively
resulting in a one time benefit, including related costs, of $1,600,000.
Excluding the net benefit of the early license termination realized during the
second and third quarter of fiscal 2000, net income in the prior year nine-month
period was $7,353,000, or $1.26 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 $50,849,000 and $42,025,000 as of March 31, 2001 and 2000,
respectively.
For the nine months ended March 31, 2001, the Company's operating activities
used cash of $962,000 compared to providing cash of $12,145,000 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 $3,005,000 for the nine months ended March 31, 2001.
The increase of $1,454,000 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 computer
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 7 of the condensed consolidated financial statements for a discussion
of the Company's stock repurchase program.
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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
See Note 8 and 9 of the condensed consolidated financial statements for a
discussion of acquisitions consummated by the Company.
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.
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
================================================================================
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 March 31, 2001, the Company had borrowings under its credit
lines of $50,849,000 bearing a weighted-average interest rate of 6.74%. The
Company has 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 March 31,
2001, the receive and pay rates related to the interest rate swap were 6.41% and
6.52%, respectively. At March 31, 2001, the fair value of the interest rate swap
agreement was approximately ($235,000). 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
None.
(b) Reports on Form 8-K.
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.
The Company filed a Form 8-K on April 12, 2001 regarding the press release
announcing updated guidance on its financial results for the third quarter of
fiscal 2001 and the launch of the Company's new line of women's handbags, small
leather goods and belts produced under the Dockers(R) name.
The Company filed a Form 8-K on April 25, 2001 regarding the press release
announcing its financial results for the third 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: May 10, 2001
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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
- ------------------------------ ---- ---- -------- -------
(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 4.1
4.2 Form of Common Stock
Certificate of Tandy
Brands Accessories, Inc. S-1 11/02/90 33-37588 4.2
4.3 Form of Preferred Share
Purchase Rights Certificate
Of Tandy Brands
Accessories, Inc. S-1 11/02/90 33-37588 4.3
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 10.5
17