1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q Quarterly Report Pursuant To Section 13 or 15 (d) of the Securities Exchange Act of 1934 ------------------------- For the Period Ended March 31, 1997 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 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, 1997 - -------------------------- ---------------------------------------------- Common stock, $1 par value 5,470,408 2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Form 10-Q Quarter Ended March 31, 1997 TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Item Page No. -------- 1. Financial Statements 3 - 6 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 8 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 10 INDEX TO EXHIBITS AND EXHIBITS 11 - 13 2 3 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 --------------------- --------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Gross sales, less discounts, returns and allowances $ 23,922 $ 19,180 $ 77,462 $ 66,289 Royalty, interest and other income 31 9 83 104 -------- -------- -------- -------- Total revenues 23,953 19,189 77,545 66,393 -------- -------- -------- -------- Costs and expenses: Cost of goods sold 14,985 11,915 48,706 40,914 Selling, general and administrative 6,984 5,783 20,979 19,582 Depreciation and amortization 430 535 1,304 1,601 Interest expense 313 297 954 1,020 -------- -------- -------- -------- Total costs and expenses 22,712 18,530 71,943 63,117 -------- -------- -------- -------- Income before provision for income taxes 1,241 659 5,602 3,276 Provision for income taxes (496) (230) (2,094) (1,160) -------- -------- -------- -------- Net income $ 745 $ 429 $ 3,508 $ 2,116 ======== ======== ======== ======== Average common shares and common share equivalents 5,508 5,381 5,480 5,348 ======== ======== ======== ======== Earnings per average common share and common share equivalent $ 0.14 $ 0.08 $ 0.64 $ 0.40 ======== ======== ======== ======== Cash dividends per common share None None None None The accompanying notes are an integral part of these condensed financial statements. 3 4 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES File Number 0-18927 Form 10-Q Condensed Consolidated Balance Sheets (Dollars in thousands) March 31, June 30, 1997 1996 ----------- -------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 383 $ 88 Accounts receivable, net 17,938 13,746 Inventories: Raw materials and work in process 7,037 6,046 Finished goods 26,794 20,564 Other current assets 1,948 2,505 -------- -------- Total current assets 54,100 42,949 -------- -------- Property and equipment, at cost 10,101 9,326 Accumulated depreciation (5,007) (4,246) -------- -------- Net property and equipment 5,094 5,080 -------- -------- Other assets: Goodwill, less amortization 8,074 8,526 Other assets, less amortization 1,811 1,856 -------- -------- Total other assets 9,885 10,382 -------- -------- TOTAL ASSETS $ 69,079 $ 58,411 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 6,000 $ 2,200 Accounts payable 1,576 4,624 Accrued expenses 3,480 2,043 -------- -------- Total current liabilities 11,056 8,867 -------- -------- Other liabilities: Notes payable 16,850 12,400 Other noncurrent liabilities 252 297 -------- -------- Total other liabilities 17,102 12,697 -------- -------- Stockholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $1 par value, 10,000,000 shares authorized, 5,470,408 shares and 5,382,267 shares issued and outstanding as of March 31, 1997, and June 30, 1996, respectively 5,470 5,382 Additional paid-in capital 18,561 18,038 Retained earnings 16,890 13,427 -------- -------- Total stockholders' equity 40,921 36,847 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 69,079 $ 58,411 ======== ======== The accompanying notes are an integral part of these condensed financial statements. 4 5 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES File Number 0-18927 Form 10-Q Condensed Consolidated Statements of Cash Flow (Dollars In Thousands) (Unaudited) Nine Months Ended March 31, --------------------- 1996 1995 -------- -------- Cash flows from operating activities: Net income $ 3,508 $ 2,116 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 801 794 Amortization 640 923 Other (100) 37 Change in assets and liabilities, net of effects from acquisitions: Accounts receivable (4,192) (280) Inventories (7,221) 3,798 Other assets 384 (335) Accounts payable (3,048) (1,363) Accrued expenses 1,437 (361) -------- -------- Net cash used for operating activities (7,791) 5,329 -------- -------- Cash flows from investing activities: Purchases of property and equipment (775) (572) -------- -------- Net cash used for investing activities (775) (572) -------- -------- Cash flows from financing activities: Exercise of employee stock options, net of purchase of treasury stock -- 20 Sale of stock to stock purchase program 611 680 Proceeds from borrowings 25,950 21,195 Payments under borrowings (17,700) (27,122) -------- -------- Net cash provided by financing activities 8,861 (5,227) -------- -------- Net increase (decrease) in cash and cash equivalents 295 (470) Cash and cash equivalents at beginning of period 88 1,488 -------- -------- Cash and cash equivalents at end of period $ 383 $ 1,018 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 954 $ 1,017 Income taxes 1,577 643 The accompanying notes are an integral part of these condensed financial statements. 5 6 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed 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, 1997, are not necessarily indicative of the results that may be expected for the year ended June 30, 1997. 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, 1996. 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. GENERAL Tandy Brands Accessories, Inc. (the "Company") manufactures and markets men's, women's and children's accessories. The Company's business is conducted primarily in the United States. Historically, the Company's sales and operating results are generally consistent throughout the fiscal year, but there is normally a seasonal increase during the second quarter. 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. RESULTS OF OPERATIONS Three and Nine Months Ended March 31, 1997 Compared to the Three and Nine Months Ended March 31, 1996 For the three month period ended March 31, 1997, net sales increased 25% to $23,922,000, as compared to net sales of $19,180,000, for the same period last year. Net income for the third quarter increased 74% to $745,000, or $0.14 per share, compared to net income of $429,000, or $0.08 per share, for the same three months last year. For the nine month period ended March 31, 1997, net sales increased 17% to $77,462,000, as compared to net sales of $66,289,000 for the same period last year. Net income for the nine month period increased 66% to $3,508,000, or $0.64 per share, compared to net income of $2,116,000, or $0.40 per share, for the same nine months last year. The net sales increases for the three and nine months reflect sales increases of women's products of $2,909,000 and $8,769,000, respectively, as compared to the same periods of the prior year. The women's net sales for the three months are higher than normal expectations for the quarter due in part to two large shipments of product to certain mass merchants. Consistent with Company historical trends, these increased women's product sales were made at lower gross margins as compared to men's product sales. However, these women's product sales incur lower selling, general and administrative expenses than men's product sales which contributed to improved net income performance as a percentage of sales compared to the three and nine months results for the prior year. Additionally, decreased selling, general and administrative expenses as a percentage of sales for the three and nine month periods ended March 31, 1997, reflect the results of certain strategic initiatives begun in fiscal 1996, which included curtailment of many variable selling, general and administrative expenses. Men's products had net sales increases over the prior year in both the three and nine months periods of $l,608,000 and $2,107,000, respectively. Men's belt and wallet sales increases offset sales decreases in the Company's neckwear business caused by loss of customers and fashion trends toward more casual men's business dress. The effective tax rate for the nine months ended March 31, 1997 was 37.4% compared to 35.4% for the same prior year period due to increased state income taxes. 7 8 LIQUIDITY AND CAPITAL RESOURCES Generally, the Company's primary sources of liquidity are cash flow from operations and the Company's lines of credit. The Company has two unsecured bank credit lines aggregating $45,000,000 which can be used for seasonal borrowings and letters of credit. The Company also has an unsecured line of credit of $1,500,000CND with a Canadian bank for seasonal borrowings and letter of credit requirements of the Company's Canadian operations. The Company's borrowings under its credit lines were $22,850,000 and $14,600,000 as of March 31, 1997 and June 30, 1996, respectively. For the nine months ended March 31, 1997, the Company's operating activities used cash of $7,791,000. The use of cash resulted primarily from a $7,221,000 increase in inventories, a $4,192,000 increase in accounts receivable, a net decrease in accounts payable and accrued expenses of $1,611,000 offset by net income of $3,508,000. This net use of cash relates to the increasing sales trends requiring increased inventory levels and increases in accounts receivable due to higher sales. Capital expenditures were $775,000 for the nine months ended March 31, 1997. The increase of $203,000 over the same prior year period is due primarily to leasehold improvements in the Company's New York City offices. The Company believes that its sources of liquidity are sufficient to fund its operations. 8 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 1997. The exhibits filed as a part of this report are listed below. Exhibit No. Description 11 Statement Regarding Computation of Per Share Earnings 27 Financial Data Schedule 9 10 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 13, 1997 10 11 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT INDEX Sequen- Incorporated by Reference tially (If applicable) Numbered -------------------------------------------------- Exhibit Number and Description Page 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. N/A S-1 11/02/90 33-37588 4.1 4.2 Form of Common Stock Certificate of Tandy Brands Accessories, Inc. N/A S-1 11/02/90 33-37588 4.2 4.3 Form of Preferred Share Purchase Rights Certificate of Tandy Brands Accessories, Inc. N/A 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 N/A S-1 11/02/90 33-37588 10.5 (11) Statement re computation of per share earnings 11.1 Earnings per share statement 12 N/A N/A N/A N/A (27) Financial Data Schedule 27.1 Financial Data Schedule 13 N/A N/A N/A N/A 11