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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, 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 September 30, 1998
Common stock, $1 par value 5,681,082
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended September 30, 1998
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item Page No.
1. Financial Statements 3 - 8
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 11
3. Qualitative and Quantitative Disclosures About Market Risk 11
PART II -- OTHER INFORMATION
Item
4. Submission of Matter to a Vote of Security Holders 11
6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX TO EXHIBITS 14
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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
----------------------------
1998 1997
----------- -----------
Gross sales, less discounts, returns and allowances $ 44,281 $ 30,865
Cost of goods sold 27,801 19,249
-------- --------
Gross margin 16,480 11,616
Selling, general and administrative expenses 11,113 7,870
Depreciation and amortization 747 437
-------- --------
Total operating expenses 11,860 8,307
-------- --------
Operating income 4,620 3,309
Interest expense (745) (274)
Royalty, interest and other income 20 97
-------- --------
Income before provision for income taxes 3,895 3,132
Provision for income taxes 1,511 1,200
-------- --------
Net income $ 2,384 $ 1,932
======== ========
Earnings per common share $ 0.42 $ 0.35
======== ========
Earnings per common share - assuming dilution $ 0.41 $ 0.35
======== ========
Average common shares outstanding 5,670 5,536
======== ========
Average common shares outstanding - assuming dilution 5,768 5,588
======== ========
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,
1998 1998
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 54 $ 283
Accounts receivable, net 31,867 27,565
Inventories:
Raw materials and work in process 7,635 8,648
Finished goods 48,177 39,355
Other current assets 2,598 2,329
--------- ---------
Total current assets 90,331 78,180
--------- ---------
Property and equipment, at cost 16,707 16,110
Accumulated depreciation (5,739) (5,355)
--------- ---------
Net property and equipment 10,968 10,755
--------- ---------
Other assets:
Goodwill, less amortization 10,219 10,489
Other assets, less amortization 8,498 8,596
--------- ---------
Total other assets 18,717 19,085
--------- ---------
TOTAL ASSETS $ 120,016 $ 108,020
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,716 $ 6,789
Notes payable 18,550 7,600
Accrued expenses 6,692 7,457
--------- ---------
Total current liabilities 30,958 21,846
--------- ---------
Other liabilities:
Notes payable 35,000 35,000
Other noncurrent liabilities 340 333
--------- ---------
Total other liabilities 35,340 35,333
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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,
5,681,082 shares and 5,616,724 shares issued and outstanding
as of September 30, 1998, and June 30, 1998, respectively 5,681 5,617
Additional paid-in capital 20,991 20,374
Retained earnings 27,046 24,850
--------- ---------
Total stockholders' equity 53,718 50,841
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,016 $ 108,020
========= =========
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,
-------------------------
1998 1997
---------- ---------
Cash flows from operating activities:
Net income $ 2,384 $ 1,932
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 417 269
Amortization 365 222
Other (148) 4
Change in assets and liabilities:
Accounts receivable (4,302) (5,825)
Inventories (7,809) (2,836)
Other assets (303) 121
Accounts payable (1,073) (451)
Accrued expenses (758) 1,098
-------- --------
Net cash used for operating activities (11,227) (5,466)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (633) (229)
-------- --------
Net cash used for investing activities (633) (229)
-------- --------
Cash flows from financing activities:
Exercise of employee stock options 151 180
Sale of stock to stock purchase program 530 367
Proceeds from borrowings 22,792 14,300
Payments under borrowings (11,842) (9,050)
-------- --------
Net cash provided by financing activities 11,631 5,797
-------- --------
Net increase (decrease) in cash and cash equivalents (229) 102
Cash and cash equivalents at beginning of period 283 554
-------- --------
Cash and cash equivalents at end of period $ 54 $ 656
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 495 $ 287
Income taxes 1 1
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, 1998, are not necessarily indicative of the results that may
be expected for the year ended June 30, 1999. 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, 1998.
Note 2 - Impact of New Accounting Standards.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (" SFAS") No. 130, "Reporting
Comprehensive Income." This standard was adopted by the Company in the first
quarter of fiscal 1999. 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, which for the Company includes foreign currency
translation adjustments. The impact of the adoption of this statement was
primarily limited to the form and content of the Company's disclosures and does
not materially impact the Company's consolidated financial position or
statements of operations, stockholders' equity and cash flows.
The components of comprehensive income, net of related tax, for the
three months ended September 30, 1998 and 1997 are as follows:
Three Months
Ended
September 30
-----------------------
1998 1997
------- -------
Net income $ 2,384 $ 1,932
Foreign currency translation adjustments (188) 2
------- -------
Comprehensive income $ 2,196 $ 1,934
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In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." 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. The statement is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted. The
effect of the adoption of SFAS No. 131 during fiscal year 1999 will primarily be
limited to the form and content of the Company's disclosures in its Annual
Report and is not expected to materially impact the Company's consolidated
financial position or statements of operations, stockholders' equity and cash
flows.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)
Note 3 - Credit Arrangements
On September 16, 1998, the Company amended its $35,000,000 unsecured
line of credit with a bank to $40,000,000. Of this amount, $15,000,000 is a
committed facility which expires on May 15, 2000. The $20,000,000 uncommitted
facility thereunder was increased to $25,000,000. Each facility may be used for
borrowings or letters of credit.
On November 2, 1998, the Company amended its $30,000,000 unsecured line
of credit with another bank to $35,000,000. Of this amount, $10,000,000 is an
uncommitted facility which expires on April 30, 1999. The $20,000,000 committed
facility thereunder was increased to $25,000,000. Each facility may be used for
borrowings or letters of credit. The amendment also made the Company's domestic
subsidiaries co-guarantors of the Company's indebtedness, eased certain
financial covenants and set acquisition purchase price thresholds over which the
bank must give its written consent.
Note 4 - Subsequent Events
On October 1, 1998, the Company withdrew its registration statement
with the Securities and Exchange Commission for a public offering of 1,900,000
shares of common stock offered by the Company and a selling stockholder. The
Company withdrew the offering due to unsettled market conditions. The Company
believes it has adequate alternative sources of financing to meet its needs. The
Company intends to use its available debt capacity for seasonal working capital
needs and potential future acquisitions.
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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
Ended
September 30
--------------------
1998 1997
------ ------
Numerator for basic and diluted earnings per share:
Net income $2,384 $1,932
====== ======
Denominator:
Weighted average shares outstanding 5,650 5,521
Contingently issuable shares 20 15
------ ------
Denominator for basic earnings per
share - weighted average shares 5,670 5,536
Effect of dilutive securities:
Employee stock options 85 43
Director stock options 13 9
------ ------
Dilutive potential common shares 98 52
Denominator for diluted earnings per
share - adjusted weighted - average
shares 5,768 5,588
====== ======
Basic earnings per share $ 0.42 $ 0.35
====== ======
Diluted earnings per share $ 0.41 $ 0.35
====== ======
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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") 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, suspenders
and neckwear. Tandy Brands' merchandise is marketed under a broad portfolio of
nationally recognized licensed and proprietary brand names, including Jones New
York(R), Greg Norman Collection(R), Rolfs(R), Haggar(R), Bugle Boy(R),
Canterbury(R), Prince Gardner(R), Princess Gardner(R), Amity(R), Accessory
Design Group(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,
golf pro shops and catalogs.
On October 1, 1998, the Company withdrew its registration statement with the
Securities and Exchange Commission for a public offering of 1,900,000 shares of
common stock offered by the Company and a selling stockholder. The Company
withdrew the offering due to unsettled market conditions. The Company believes
it has adequate alternative sources of financing to meet its needs. The Company
intends to use its available debt capacity for seasonal working capital needs
and potential future acquisitions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
NET SALES
For the three month period ended September 30, 1998, net sales increased 43.5%
to $44,281,000 as compared to net sales of $30,865,000 for the same period last
year. The net sales increase for the three-month period ended September 30, 1998
was attributable to $9,525,000 in sales realized from our Amity/Rolfs product
introductions and Tiger Accessories, Inc. acquisition as well as $3,891,000 in
sales increases from the Company's existing men's and women's businesses.
GROSS MARGINS
Gross margins for the three month period ended September 30, 1998 decreased 0.4%
to 37.2% as compared to the same period for the prior year. The slight decrease
is the result of the higher mass merchant sales as compared to the same quarter
in the prior year.
OPERATING EXPENSES
Selling, general and administrative expenses as a percentage of net sales for
the three months ended September 30, 1998 decreased 0.4% as compared to the same
period of the prior year. A portion of this decrease resulted from a larger mix
of mass merchant product sales, which, on a percentage of sales basis, incur
lower variable selling expenses than department store product sales.
Depreciation and amortization expenses increased 70.9% to $747,000 for the three
months ended September 30, 1998, compared to $437,000 in the same period of the
prior year. Amortization expense increased $163,000 due to goodwill and related
intangibles recorded in connection with the Amity/Rolfs tradename purchase and
Tiger Accessories, Inc. acquisition during the fourth quarter of fiscal 1998.
Depreciation expense increased $147,000 due to capital expenditures initiated at
the end of fiscal 1998.
Interest expense for the three-month period ended September 30, 1998 increased
$471,000 as compared to the same period for the prior year. The increase is
primarily related to higher debt levels as a result of the purchase of certain
assets of Amity/Rolfs and the acquisition of Tiger Accessories, Inc.
The effective tax rate for the three months ended September 30, 1998 was 38.8%
compared to 38.3% for the same prior year period due to increased state income
taxes.
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Net income for the three-month period ended September 30, 1998 increased 23.4%
to $2,384,000 or $.41 per diluted share, compared to net income of $1,932,000 or
$.35 per diluted share, for the same three months last year. The increase in net
income was primarily due to the Company's 43.5% increase in net sales.
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 $75,000,000, which can be used for
seasonal borrowings and letters of credit. The Company's borrowings under its
credit lines were $53,550,000 and $21,100,000 as of September 30, 1998 and 1997,
respectively.
See Note 3 for a discussion of certain amendments to these credit lines.
For the three months ended September 30, 1998, the Company's operating
activities used cash of $11,227,000 compared to $5,466,000 for the same period
last year. The increase was attributable to cash used to fund the purchase of
inventory during the three months ended September 30, 1998.
Capital expenditures were $633,000 for the three months ended September 30,
1998. The increase of $404,000 over the same prior year period is due primarily
to the purchase and installation of distribution center management systems and
capital expenditures related to the expansion of the Yoakum, Texas distribution
facility.
The Company believes that its sources of liquidity are sufficient to fund its
operations.
YEAR 2000 COMPLIANCE
Many existing computer programs utilized globally use only two digits to
identify a year in the date field. These programs, if not corrected, could fail
or create erroneous results by or at the year 2000. This year 2000 issue is
believed to affect virtually all companies and organizations, including the
Company. The Company has undertaken a program to address its exposure to year
2000 issues. The Company is currently testing its program modifications and
believes that its implementation plan will be successful. Although there can be
no assurance with respect thereto, the Company does not expect that the year
2000 issues (including the cost of the Company's compliance program as currently
estimated ) will have a material adverse effect on the Company's financial
position or results of operations.
The Company's year 2000 compliance plan requires the query of its significant
suppliers, subcontractors and customers that do not share information systems
with the Company ("external third parties"). This process is expected to be
completed by the end of fiscal 1999. To date, the Company is unaware of any
external third party with a year 2000 issue that would materially impact the
Company's results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that external third parties will be year 2000
ready. The inability of external third parties to complete their year 2000
resolution process in a timely fashion could materially impact the Company. The
effect of non-compliance by external third parties is not determinable.
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
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.
ITEM 3. Qualitative and Quantitative Disclosures About Market Risk
The Company does not believe market risks related to its financial
instruments, principally debt, are material.
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 20, 1998.
(b) The matters voted upon were as follows:
(i) The election of two directors in Class II to serve for three-year
terms expiring in 2001, 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:
Mr. C. A. Rundell, Jr.
For 4,900,410 Against/Withheld 13,322 Abstain -0- Broker Non-votes -0-
Mr. Robert E. Runice
For 4,900,410 Against/Withheld 13,322 Abstain -0- Broker Non-votes -0-
Directors whose terms continued after the annual meeting are as follows:
Mr. J.S.B. Jenkins
Dr. James F. Gaertner
Ms. Maxine K. Clark
Mr. Gene Stallings
Mr. Marvin J. Girouard
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
ITEM 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September
30, 1998. The exhibits filed as a part of this report are listed below.
Exhibit No. Description
10.27 Promissory Note between Tandy Brands Accessories,
Inc. and NationsBank, N. A. dated September 16,
1998.
10.28 Amendment No. 6 to the Credit Agreement between
Tandy Brands Accessories, Inc. and Chase Bank
(Texas Commerce) of Texas, N.A. dated as of
June 10, 1994.
27.1 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
-------------------------------------
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: November 10, 1998
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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
(10) Material Contracts
10.27 Promissory Note between
Tandy Brands Accessories, Inc.
and NationsBank, N. A. dated
September 16, 1998. N/A N/A N/A N/A
10.28 Amendment No. 6 to
the Credit Agreement
between Tandy Brands
Accessories, Inc. and Chase
Bank (Texas Commerce) of
Texas, N.A. dated as of N/A N/A N/A N/A
June 10, 1994.
(27) Financial Data Schedule
27.1 Financial Data Schedule N/A N/A N/A N/A