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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, 1999 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, 1999
Common stock, $1 par value 5,738,982
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended March 31, 1999
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
- ----
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 Nine Months
Ended Ended
March 31 March 31
--------------------------- -----------------------------
1999 1998 1999 1998
---------- ----------- ------------ ------------
Gross sales, less discounts, returns and allowances $ 38,247 $ 32,970 $ 136,650 $ 100,658
Cost of goods sold 24,162 20,947 86,016 63,488
---------- ----------- ------------ ------------
Gross margin 14,085 12,023 50,634 37,170
Selling, general and administrative expenses 9,882 8,936 33,396 25,128
Depreciation and amortization 760 463 2,314 1,343
---------- ----------- ------------ ------------
Total operating expenses 10,642 9,399 35,710 26,471
---------- ----------- ------------ ------------
Operating income 3,443 2,624 14,924 10,699
Interest expense (716) (363) (2,304) (989)
Royalty, interest and other income 73 14 117 128
---------- ----------- ------------ ------------
Income before provision for income taxes 2,800 2,275 12,737 9,838
Provision for income taxes 1,085 891 4,960 3,791
---------- ----------- ------------ ------------
Net income $ 1,715 $ 1,384 $ 7,777 $ $6,047
========== =========== ============ ============
Earnings per common share $ 0.30 $ 0.25 $ 1.36 $ $ 1.09
========== =========== ============ ============
Earnings per common share - assuming dilution $ 0.29 $ 0.24 $ 1.34 $ $ 1.07
========== =========== ============ ============
Common shares outstanding 5,746 5,587 5,710 5,564
========== =========== ============ ============
Common shares outstanding - assuming dilution 5,835 5,716 5,799 5,662
========== =========== ============ ============
Cash dividends per common share None None None None
The accompanying notes are an integral part of these condensed
consolidated 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,
1999 1998
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 418 $ 283
Accounts receivable, net 31,651 27,565
Inventories:
Raw materials and work in process 7,306 8,648
Finished goods 43,556 39,355
Other current assets 2,415 2,329
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Total current assets 85,346 78,180
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Property and equipment, at cost 17,169 16,110
Accumulated depreciation (6,477) (5,355)
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Net property and equipment 10,692 10,755
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Other assets:
Goodwill, less amortization 10,528 10,489
Other assets, less amortization 8,662 8,596
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Total other assets 19,190 19,085
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TOTAL ASSETS $ 115,228 $ 108,020
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 7,600
Accounts payable 3,149 6,789
Accrued expenses 5,307 7,457
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Total current liabilities 8,456 21,846
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Other liabilities:
Notes payable 46,700 35,000
Other noncurrent liabilities 283 333
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Total other liabilities 46,983 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,
5,738,982 shares and 5,616,724 shares issued and outstanding
as of March 31, 1999, and June 30, 1998, respectively 5,739 5,617
Additional paid-in capital 21,577 20,374
Retained earnings 32,473 24,850
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Total stockholders' equity 59,789 50,841
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 115,228 $ 108,020
============= =============
The accompanying notes are an integral part of these condensed
consolidated 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,
-------------------------
1999 1998
------------ -----------
Cash flows from operating activities:
Net income $ 7,777 $ 6,047
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 1,276 828
Amortization 1,146 620
Other (82) (10)
Change in assets and liabilities:
Accounts receivable (4,188) (8,062)
Inventories (2,859) (1,540)
Other assets (90) (86)
Accounts payable (3,640) (1,672)
Accrued expenses (2,217) 920
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Net cash used for operating activities (2,877) (2,955)
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Cash flows from investing activities:
Purchases of property and equipment (2,413) (1,484)
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Net cash used for investing activities (2,413) (1,484)
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Cash flows from financing activities:
Exercise of employee stock options 222 222
Sale of stock to stock purchase program 1,103 819
Proceeds from borrowings 52,392 40,750
Payments under borrowings (48,292) (36,900)
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Net cash provided by financing activities 5,425 4,891
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Net increase (decrease) in cash and cash equivalents 135 452
Cash and cash equivalents at beginning of period 283 554
------------ -----------
Cash and cash equivalents at end of period $ 418 $ 1,006
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,200 $ 822
Income taxes 3,344 4,094
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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, 1999, 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 income, stockholders' equity and cash flows.
The components of comprehensive income, net of related tax, for the
three and nine months ended March 31, 1999 and 1998 are as follows:
Three Months Nine Months
Ended Ended
March 31 March 31
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net income $ 1,715 $ 1,384 $ 7,777 $ 6,047
Foreign currency translation adjustments 53 46 (154) (139)
----------- ----------- ----------- -----------
Comprehensive income $ 1,768 $ 1,430 $ 7,623 $ 5,908
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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 income, stockholders' equity and cash flows.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
Note 3 - Credit Arrangements
On April 30, 1999, the Company entered into a $40,000,000 unsecured
line of credit with another bank. Of this amount, $15,000,000, which expires on
May 14, 2001, is an uncommitted facility and bears interest at various rates
with short-term durations. The remaining $25,000,000, which expires May 14,
2001, is a committed facility which requires the maintenance of certain
financial covenants and the payment of a commitment fee of 1/4% on the unused
balance. The committed facility bears interest at negotiated rates. Each
facility may be used for borrowings or letters of credit. In conjunction with
the execution of this $40,000,000 unsecured line of credit, the outstanding
balance of the $35,000,000 unsecured line of credit with another bank was paid
and the agreement terminated. The total unsecured domestic bank credit line
capacity after the new line totaled $80,000,000.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - 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
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Numerator for basic and diluted earnings per share:
Net income $ 1,715 $ 1,384 $ 7,777 $ 6,047
============ ============ ============ ============
Denominator:
Weighted average shares outstanding 5,730 5,569 5,693 5,548
Contingently issuable shares 16 18 17 16
------------ ------------ ------------ ------------
Denominator for basic earnings per
share - weighted average shares 5,746 5,587 5,710 5,564
Effect of dilutive securities:
Employee stock options 75 114 76 86
Director stock options 14 15 13 12
------------ ------------ ------------ ------------
Dilutive potential common shares 89 129 89 98
Denominator for diluted earnings per
share - adjusted weighted - average
shares 5,835 5,716 5,799 5,662
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Basic earnings per share $ 0.30 $ 0.25 $ 1.36 $ 1.09
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Diluted earnings per share $ 0.29 $ 0.24 $ 1.34 $ 1.07
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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 men's, women's and children's accessories,
including belts and small leather goods such as wallets. The Company's product
lines also include 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), 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.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE AND NINE MONTHS
ENDED MARCH 31, 1998
NET SALES
For the three month period ended March 31, 1999, net sales increased 16.0% to
$38,247,000 as compared to net sales of $32,970,000 for the same period last
year. For the nine month period ended March 31, 1999, net sales increased 35.8%
to $136,650,000 as compared to net sales of $100,658,000 for the same period
last year. The sales realized from our Amity/Rolfs products and Tiger
Accessories, Inc. acquisition contributed $8,498,000 and $34,397,000 to the
overall net sales increase for the three and nine-month periods ended March 31,
1999, respectively. For the three-month period ended March 31, 1999, net sales
from the core women's product categories had decreased as compared to the same
period last year due to lower current year replenishment order initiatives from
certain mass merchants. Additionally, during the same three-month period in the
prior year, the Company experienced unusually large initial order shipments of
women's accessories to certain mass merchants. The Company anticipates that this
third quarter decrease in new product offering shipments will be substantially
offset by the launch of a new wallet and handbag program at the mass merchant
level scheduled for the fourth quarter of fiscal 1999.
GROSS MARGINS
Gross margins for the three and nine months ended March 31, 1999 increased 0.3%
and 0.2%, respectively as compared to the same periods for the prior year. The
slight increases are the result of the higher department and specialty store
sales as compared to the same periods in the prior year. Additionally, the same
period in the prior year experienced higher initial order shipments of women's
accessories to certain mass merchants which were at lower gross margins than the
Company's historical gross margins.
OPERATING EXPENSES
Selling, general and administrative expenses as a percentage of net sales for
the three and nine months ended March 31, 1999 decreased 1.3% and 0.6%,
respectively as compared to the same periods of the prior year. The decrease was
attributable to higher than anticipated compensation expense related to the
Company's management bonus program during fiscal 1998.
Depreciation and amortization expenses increased 64.1% and 72.3% to $760,000 and
$2,314,000 for the three and nine months ended March 31, 1999, respectively, as
compared to the same periods of the prior year. Amortization expense increased
due to goodwill and related intangibles recorded in connection with the Tiger
Accessories, Inc. acquisition and Amity/Rolfs tradename purchase during the
fourth quarter of fiscal 1998. Depreciation expense increased due to capital
expenditures initiated at the end of fiscal 1998.
Interest expense for the three and nine months ended March 31, 1999 increased
$353,000 and $1,315,000, respectively, 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. during the fourth quarter of fiscal 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
The effective tax rate for the nine months ended March 31, 1999 was
approximately 38.9% compared to approximately 38.5% for the same prior year
periods due to increased state income taxes.
Net income for the three-month period ended March 31, 1999 increased 23.9% to
$1,715,000 or $.29 per diluted share, compared to net income of $1,384,000 or
$.24 per diluted share, for the same three months last year. Net income for the
nine-month period ended March 31, 1999 increased 28.6% to $7,777,000 or $1.34
per diluted share, compared to net income of $6,047,000 or $1.07 per diluted
share, for the same period last year. The increase in net income was primarily
due to the Company's 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 $80,000,000, which can be used for
seasonal borrowings and letters of credit. The Company's borrowings under its
credit lines were $46,700,000 and $19,700,000 as of March 31, 1999 and 1998,
respectively.
See Note 3 for a discussion of certain amendments to these credit lines.
For the nine months ended March 31, 1999, the Company's operating activities
used cash of $2,877,000 compared to $2,955,000 for the same period last year.
The decrease was attributable to cash receipts collected from the increase in
second quarter of fiscal 1999 sales which were used to fund the purchase of
inventory during the three months ended March 31, 1999.
Capital expenditures were $2,413,000 for the nine months ended March 31, 1999.
The increase of $929,000 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 utilize 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.
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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 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 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 a
interest rate swap agreement to lock in a fixed interest rate for a portion of
these borrowings. At March 31, 1999 the Company had borrowings under its credit
lines of $46,700,000 bearing a weighted- average interest rate of 5.96%. The
Company 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,
1999, the receive and pay rates related to the interest rate swap were 6% and
6.52%, respectively. The potential impact of market conditions on the fair value
of the Company's indebtedness is not expected to be material.
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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,
1999. The exhibits filed as a part of this report are listed below.
Exhibit No. Description
10.31 Revolving Credit and Uncommitted Line of Credit Agreement
between Tandy Brands Accessories, Inc. and Wells Fargo HSBC
Trade Bank, N.A. dated as of April 30, 1999.
10.32 Tandy Brands Accessories, Inc. Employees Investment Plan as
Amended and Restated Effective April 1, 1999.
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: May 14, 1999
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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
10.31 Revolving Credit and
Uncommitted Line of Credit
Agreement between Tandy
Brands Accessories, Inc. and
Wells Fargo HSBC Trade
Bank, N.A., dated as of
April 30, 1999. N/A N/A N/A N/A
10.32 Tandy Brands Accessories, Inc.
Employees Investment Plan as
Amended and Restated
Effective April 1, 1999. 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
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