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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 September 30, 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:
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 September 30, 1997
Common stock, $1 par value 5,543,362
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended September 30, 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
- ----
4. Submission of Matter to a Vote of Security Holders 9
6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
INDEX TO EXHIBITS AND EXHIBITS 11 - 13
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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
Ended
September 30
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1997 1996
------- -------
Gross sales, less discounts, returns and allowances $30,865 $23,661
Royalty, interest and other income 97 2
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Total revenues 30,962 23,663
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Costs and expenses:
Cost of goods sold 19,249 14,728
Selling, general and administrative 7,870 6,522
Depreciation and amortization 437 446
Interest expense 274 286
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Total costs and expenses 27,830 21,982
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Income before provision for income taxes 3,132 1,681
Provision for income taxes 1,200 618
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Net income $ 1,932 $ 1,063
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Average common shares and
common share equivalents 5,631 5,436
======= =======
Earnings per average common share
and common share equivalent $ 0.34 $ 0.20
======= =======
Cash dividends per common share 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)
September 30, June 30,
1997 1997
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 656 $ 554
Accounts receivable, net 21,035 15,210
Inventories:
Raw materials and work in process 5,412 5,982
Finished goods 29,684 26,278
Other current assets 2,277 2,489
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Total current assets 59,064 50,513
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Property and equipment, at cost 9,866 9,652
Accumulated depreciation (5,053) (4,797)
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Net property and equipment 4,813 4,855
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Other assets:
Goodwill, less amortization 7,792 7,941
Other assets, less amortization 2,073 2,055
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Total other assets 9,865 9,996
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TOTAL ASSETS $ 73,742 $ 65,364
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,729 $ 3,180
Accrued expenses 4,991 3,979
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Total current liabilities 7,720 7,159
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Other liabilities:
Notes payable 21,100 15,850
Other noncurrent liabilities 312 226
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Total other liabilities 21,412 16,076
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Stockholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $1 par value, 10,000,000 shares authorized,
5,543,362 shares and 5,490,091 shares issued and outstanding
as of September 30, 1997, and June 30, 1997, respectively 5,544 5,490
Additional paid-in capital 19,225 18,732
Retained earnings 19,841 17,907
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Total stockholders' equity 44,610 42,129
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,742 $ 65,364
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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)
Three Months Ended
September 30,
------------------------
1997 1996
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Cash flows from operating activities:
Net income $ 1,932 $ 1,063
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 269 231
Amortization 222 195
Other 4 40
Change in assets and liabilities:
Accounts receivable (5,825) (3,205)
Inventories (2,836) (5,663)
Other assets 121 770
Accounts payable (451) (2,197)
Accrued expenses 1,098 502
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Net cash used for operating activities (5,466) (8,264)
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Cash flows from investing activities:
Purchases of property and equipment (229) (154)
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Net cash used for investing activities (229) (154)
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Cash flows from financing activities:
Exercise of employee stock options, net of purchase of treasury stock 180 0
Sale of stock to stock purchase program 367 241
Proceeds from borrowings 14,300 14,300
Payments under borrowings (9,050) (5,850)
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Net cash provided by financing activities 5,797 8,691
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Net increase (decrease) in cash and cash equivalents 102 273
Cash and cash equivalents at beginning of period 554 88
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Cash and cash equivalents at end of period $ 656 $ 361
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 287 $ 280
Income taxes 1 32
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 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 month
period ended September 30, 1997, are not necessarily indicative of the results
that may be expected for the year ended June 30, 1998. 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, 1997.
Note 2 - Impact of New Accounting Standards.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." SFAS No. 128 requires dual presentation of net income per share on
the face of all income statements issued after December 31, 1997 for all
entities with complex capital structures. At the same time the Company will be
required to change the method currently used to compute net income per share
and to restate net income per share for all prior periods. The impact of SFAS
No. 128 on primary and fully diluted net income per share amounts for the first
quarter ended September 30, 1997 and 1996 is not expected to be material.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 requires that an enterprise report, by major
component and as a single total, the change in its equity during the period
from nonowner sources, and SFAS No. 131 establishes annual and interim
reporting requirements for an enterprise's operating segments and related
disclosures about its products and services, geographical areas in which it
operates and major customers. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted. Adoption
of these statements is not expected to materially impact the Company's
consolidated financial position or statements of operations, stockholders'
equity and cash flows. Effects of the adoption of these statements will
primarily be limited to the form and content of the Company's disclosures.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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 a normally 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 Months Ended September 30, 1997 Compared to the Three Months Ended
September 30, 1996
For the three month period ended September 30, 1997, net sales increased 30.4%
to $30,865,000 as compared to net sales of $23,661,000 for the same period
last year. Net income for the first quarter increased 81.8% to $1,932,000 or
$.34 per share, compared to net income of $1,063,000 or $.20 per share, for the
same three months last year.
Men's and women's products had net sales increases over the prior year in the
comparable three-month period of $644,000 and $6,560,000, respectively. The
women's product net sales for the first quarter of fiscal 1998 were higher than
normal expectations due in part to initial order shipments of scarves, hair
goods and handbags to certain major customers in addition to increased women's
accessories sales.
Gross margins for the three month period decreased 0.2% as compared to the same
period for the prior year. Consistent with Company historical trends, the lower
gross margins associated with women's product sales were offset by handbag and
men's product sales.
Selling, general and administrative expenses as a percentage of net sales for
the three months ended September 30, 1997 decreased 2.1% as compared to the
same period of the prior year. A portion of this decrease resulted from a
larger mix of women's product sales, which, on a percentage sales basis, incur
lower variable selling expenses than men's product sales. Additionally, the
majority of the sales increases for the quarter were to customers on which no
sales commissions are paid, which decreased selling costs as a percentage of
sales.
The effective tax rate for the three months ended September 30, 1997 was 38.3%
compared to 36.8% for the same prior year period due to increased state income
taxes.
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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
bank credit lines aggregating $50,000,000 which can be used for seasonal
borrowings and letters of credit. The Company also has a Canadian line of
credit for approximately $1,000,000 secured by a letter of credit from a U.S.
bank. The Company's borrowings under its credit lines were $21,100,000 and
$23,050,000 as of September 30, 1997 and 1996, respectively.
For the three months ended September 30, 1997, the Company's operating
activities used cash of $5,466,000 compared to $8,264,000 for the same period
last year. The decrease was attributable to cash receipts collected from the
increase in fourth quarter of fiscal 1997 sales which were used to fund the
purchase of inventory during the three months ended September 30, 1997. 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 $229,000 for the three months ended September 30,
1997. The increase of $75,000 over the same prior year period is due
primarily to enhancements made to the Company's management information systems.
The Company believes that its sources of liquidity are sufficient to fund its
operations.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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 16, 1997.
(b) The matters voted upon were as follows:
(i) The election of three directors in Class I to serve for three-year
terms expiring in 2000, 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 4,753,401 Against/Withheld 5,597 Abstain -0- Broker Non-votes -0-
Ms. Maxine K. Clark
For 4,753,064 Against/Withheld 5,934 Abstain -0- Broker Non-votes -0-
Mr. Gene Stallings
For 4,726,073 Against/Withheld 32,925 Abstain -0- Broker Non-votes -0-
Directors whose terms continued after the annual meeting are as
follows:
Mr. J.S.B. Jenkins
C.A. Rundell, Jr.
Robert E. Runice
Mr. Clayton Niles retired upon conclusion of the annual meeting.
Dr. Gaertner was appointed Chairman of the Board.
(ii) The approval of the Tandy Brands Accessories, Inc. 1997 Employee
Stock Option Plan (the "Plan"). The number of votes cast for and
against the approval of the Plan, as well as the number of abstentions
and broker non-votes with respect to the approval of the Plan were as
follows:
For 3,938,623 Against/Withheld 31,365 Abstain 61,608 Broker Non-votes 727,402
ITEM 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September
30, 1997. The exhibits filed as a part of this report are listed below.
Exhibit No. Description
10.23 Tandy Brands Accessories, Inc.
1997 Employee Stock Option Plan.*
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
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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
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J.S.B. Jenkins
President and Chief Executive Officer
/s/ Stanley T. Ninemire
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Stan Ninemire
Senior Vice President, Chief Financial
Officer and Treasurer
Date: November 5, 1997
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Incorporated by Reference
(If applicable)
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Exhibit Number and Description Form Date File No. Exhibit
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(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
(10) Material Contracts
10.23 Tandy Brands Accessories, Inc.
1997 Employee Stock Option
Plan.* N/A N/A N/A N/A
(11) Statement re computation of
per share earnings
11.1 Earnings per share statement N/A N/A N/A N/A
(27) Financial Data Schedule
27.1 Financial Data Schedule N/A N/A N/A N/A
*Management compensatory plan.
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