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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, 1998 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, 1998
Common stock, $1 par value 5,576,017
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended March 31, 1998
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item Page No.
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1. Financial Statements 3 - 7
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
PART II -- OTHER INFORMATION
Item
6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
INDEX TO EXHIBITS 12
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Ended
March 31 March 31
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Gross sales, less discounts, returns and allowances $ 32,970 $ 23,922 $ 100,658 $ 77,462
Royalty, interest and other income 14 31 128 82
--------- --------- --------- ---------
Total revenues 32,984 23,953 100,786 77,544
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 20,947 14,985 63,488 48,706
Selling, general and administrative 8,936 6,984 25,128 20,979
Depreciation and amortization 463 430 1,343 1,304
Interest expense 363 313 989 953
--------- --------- --------- ---------
Total costs and expenses 30,709 22,712 90,948 71,942
--------- --------- --------- ---------
Income before provision for income taxes 2,275 1,241 9,838 5,602
Provision for income taxes 891 496 3,791 2,094
========= ========= ========= =========
Net income $ 1,384 $ 745 $ 6,047 $ 3,508
========= ========= ========= =========
Earnings per common share $ 0.25 $ 0.14 $ 1.09 $ 0.65
========= ========= ========= =========
Earnings per common share - assuming dilution $ 0.24 $ 0.14 $ 1.07 $ 0.64
========= ========= ========= =========
Common shares outstanding 5,587 5,470 5,564 5,437
========= ========= ========= =========
Common shares outstanding - assuming dilution 5,716 5,506 5,662 5,463
========= ========= ========= =========
Cash dividends per common share None None None None
The accompanying notes are an integral part of these
condensed financial statements.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, June 30,
1998 1997
---------- ----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,006 $ 554
Accounts receivable, net 23,272 15,210
Inventories:
Raw materials and work in process 5,081 5,982
Finished goods 28,719 26,278
Other current assets 2,629 2,489
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Total current assets 60,707 50,513
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Property and equipment, at cost 10,735 9,652
Accumulated depreciation (5,523) (4,797)
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Net property and equipment 5,212 4,855
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Other assets:
Goodwill, less amortization 7,445 7,941
Other assets, less amortization 2,047 2,055
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Total other assets 9,492 9,996
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TOTAL ASSETS $ 75,411 $ 65,364
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,508 $ 3,180
Accrued expenses 4,793 3,979
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Total current liabilities 6,301 7,159
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Other liabilities:
Notes payable 19,700 15,850
Other noncurrent liabilities 332 226
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Total other liabilities 20,032 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,
5,576,017 shares and 5,490,091 shares issued and outstanding
as of March 31, 1998, and June 30, 1997, respectively 5,576 5,490
Additional paid-in capital 19,687 18,732
Retained earnings 23,815 17,907
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Total stockholders' equity 49,078 42,129
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,411 $ 65,364
========== ==========
The accompanying notes are an integral part of these
condensed financial statements.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
--------------------------
1998 1997
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Cash flows from operating activities:
Net income $ 6,047 $ 3,508
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 828 801
Amortization 620 640
Other (10) (100)
Change in assets and liabilities:
Accounts receivable (8,062) (4,192)
Inventories (1,540) (7,221)
Other assets (86) 384
Accounts payable (1,672) (3,048)
Accrued expenses 920 1,437
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Net cash used for operating activities (2,955) (7,791)
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Cash flows from investing activities:
Purchases of property and equipment (1,484) (775)
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Net cash used for investing activities (1,484) (775)
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Cash flows from financing activities:
Exercise of employee stock options, net of purchase of treasury stock 222 --
Sale of stock to stock purchase program 819 611
Proceeds from borrowings 40,750 38,650
Payments under borrowings (36,900) (30,400)
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Net cash provided by financing activities 4,891 8,861
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Net increase in cash and cash equivalents 452 295
Cash and cash equivalents at beginning of period 554 88
========== ==========
Cash and cash equivalents at end of period $ 1,006 $ 383
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 822 $ 954
Income taxes 4,094 1,577
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 and nine month
periods ended March 31, 1998, 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.
Certain fiscal 1997 amounts have been reclassified to conform with the fiscal
1998 presentation.
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 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Dilutive earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where necessary, restated to conform to SFAS No. 128 requirements.
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. Effects of the adoption
of these statements during fiscal year 1999 will primarily be limited to the
form and content of the Company's disclosures and is not expected to materially
impact the Company's consolidated financial position or statements of
operations, stockholders' equity and cash flows.
Note 3 - Credit Arrangements.
On March 31, 1998 the Company amended the $25,000,000 unsecured line of
credit with a bank to $30,000,000. Of this amount $20,000,000 is a committed
facility which was scheduled to expire on April 30, 1999 was extended to April
30, 2000. The $5,000,000 uncommitted facility was increased to $10,000,000. Each
facility may be used for borrowings or letters of credit.
Note 4 - Subsequent Events.
On May 12, 1998, TBAC-AR Acquisition, Inc. ("AR"), a wholly owned
subsidiary of the Company, acquired certain assets of AR Accessories Group, Inc.
through an auction held in the Bankruptcy Court for the Eastern District of
Wisconsin. The assets included, but were not limited to wholesale accounts
receivable, wholesale inventory, certain machinery and equipment, the
distribution center located in West Bend, Wisconsin and related trade names
including "Amity" and "Rolfs". The cash purchase price of approximately
$18,550,000 was provided by drawing on existing bank lines.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed 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
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
Numerator for basic and diluted earnings per
share: $ 1,384 $ 745 $ 6,047 $ 3,508
======= ======= ======= =======
Net income
Denominator:
Weighted average shares outstanding 5,569 5,461 5,548 5,432
Contingently issuable shares 18 9 16 5
------- ------- ------- -------
Denominator for basic earnings per
share - weighted average shares 5,587 5,470 5,564 5,437
Effect of dilutive securities:
Employee stock options 114 33 86 25
Director stock options 15 3 16 1
------- ------- ------- -------
Dilutive potential common shares 129 36 98 26
Denominator for diluted earnings per
share - adjusted weighted - average
shares 5,716 5,506 5,662 5,463
======= ======= ======= =======
Basic earnings per share $ 0.25 $ 0.14 $ 1.09 $ 0.65
======= ======= ======= =======
Diluted earnings per share $ 0.24 $ 0.14 $ 1.07 $ 0.64
======= ======= ======= =======
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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
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.
On May 12, 1998, TBAC-AR Acquisition, Inc. ("AR"), a wholly owned subsidiary of
the Company, acquired certain assets of AR Accessories Group, Inc. through an
auction held in the Bankruptcy Court for the Eastern District of Wisconsin. AR
Accessories Group was a manufacturer and distributor of men's and women's small
leather goods. The assets included, but were not limited to wholesale accounts
receivable, wholesale inventory, certain machinery and equipment, the
distribution center located in West Bend, Wisconsin and related trade names
including "Amity" and "Rolfs". The cash purchase price of approximately
$18,550,000 was provided by drawing on existing bank lines.
RESULTS OF OPERATIONS
Three and Nine Months Ended March 31, 1998 Compared to the Three and Nine Months
Ended March 31, 1997
For the three month period ended March 31, 1998, net sales increased 37.8% to
$32,970,000 as compared to net sales of $23,922,000 for the same period last
year. Net income for the third quarter increased 85.8% to $1,384,000 or $.24 per
share, compared to net income of $745,000 or $.14 per share, for the same three
months last year.
For the nine month period ended March 31, 1998, net sales increased 29.9% to
$100,658,000 as compared to net sales of $77,462,000 for the same period last
year. Net income for the nine month period increased 72.4% to $6,047,000 or
$1.07 per share, compared to net income of $3,508,000 or $.64 per share, for the
same nine months last year.
Women's products had net sales increases over the prior year in the comparable
three and nine month periods of $8,287,000 and $20,693,000, respectively. The
women's product net sales for the three-month period of fiscal 1998 were higher
than normal expectations due to increased spring shipments to certain mass
merchants. Women's product net sales for the nine-month period of fiscal 1998
were higher than the same period last year due in part to initial order
shipments of scarves, women's and children's socks, hair goods and Jones New
York(R) handbags to certain key customers in addition to increased women's
accessories sales.
Men's products had net sales increases over the prior year in the comparable
three and nine month periods of $761,000 and $2,503,000, respectively. The men's
products had net sales increases for the three and nine month periods of fiscal
1998 due to increased retail store distribution under the Haggar(R) and Greg
Norman Collection(R) brand names.
For the three and nine month periods gross margins decreased 0.9% and 0.2% to
36.5% and 36.9%, respectively, as compared to the same periods for the prior
year. During the three and nine month periods increases in men's gross margins
offset lower women's product sales gross margins.
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Selling, general and administrative expenses as a percentage of net sales for
the three and nine months ended March 31, 1998 decreased 2.1% as compared to the
same periods of the prior year. A portion of this decrease resulted from a
larger mix of women's product sales, which, on a percentage of sales basis,
incur lower variable selling expenses than men's product sales. Additionally,
the majority of the sales increases for the three and nine month periods of
fiscal 1998 were to customers on which no sales commissions are paid, which
decreased selling costs as a percentage of sales. Although the Company's
selling, general and administrative expenses were favorably impacted by the
larger mix of women's product sales, the Company anticipates that such expenses
in the future will be in line with historical trends.
The effective tax rate for the nine months ended March 31, 1998 was 38.5%
compared to 37.4% for the same prior year period due to increased state income
taxes.
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 $55,000,000, which can be used for
seasonal borrowings and letters of credit. The Company's borrowings under its
credit lines were $19,700,000 and $22,850,000 as of March 31, 1998 and 1997,
respectively.
See Note 3 for discussion of the amendment to certain credit arrangements.
For the nine months ended March 31, 1998, the Company's operating activities
used cash of $2,955,000 compared to $7,791,000 for the same period last year.
The decrease was attributable to cash receipts collected from the increase in
second quarter of fiscal 1998 sales which were used to fund the purchase of
inventory during the three months ended March 31, 1998.
Capital expenditures were $1,484,000 for the nine months ended March 31, 1998.
The increase of $709,000 over the same prior year period is due primarily to the
purchase of software applications for the Company's management information
systems.
The Company believes that its sources of liquidity are sufficient to fund its
operations.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of 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
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,
1998. The exhibits filed as a part of this report are listed below.
Exhibit No. Description
10 Material Contracts
27 Financial Data Schedules
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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
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Stanley T. Ninemire
Senior Vice President, Chief Financial Officer
and Treasurer
Date: May 13, 1998
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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
--------- ------------ ----------- ----------
(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 Amendments No. 4 and 5
to the Credit Agreement
between Tandy Brands
Accessories, Inc. and Chase
Bank (Texas Commerce)
of Texas dated June 30, 1994 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
27.2 Financial Data Schedule N/A N/A N/A N/A
27.3 Financial Data Schedule N/A N/A N/A N/A
27.4 Financial Data Schedule N/A N/A N/A N/A
27.5 Financial Data Schedule N/A N/A N/A N/A
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