Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 1-12368
THE LEATHER FACTORY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2543540
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3847 East Loop 820 South, Ft. Worth, Texas 76119
(Address of principal executive offices) (Zip code)
(817) 496-4414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to by 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 Shares outstanding as of May 14, 2001
- ---------------------------------------- -------------------------------------
Common Stock, par value $.0024 per share 9,968,161
Forward-Looking Statements
This report contains forward-looking statements of management. There
are certain important risks that could cause results to differ materially than
those anticipated by some of the forward-looking statements. Some, but not all,
of the important risks which could cause actual results to differ materially
from those suggested by the forward-looking statements include, among other
things,
o changes from anticipated levels of sales, whether due to future national or
regional economic and competitive conditions, including, but not limited
to, retail craft buying patterns, and possible negative trends in the craft
and western retail markets,
o failure to realized the anticipated benefits of the recent acquisition of
the assets of Tandy Leather,
o customer acceptance of existing and new products, or otherwise, pricing
pressures due to competitive industry conditions,
o increases in prices for leather (which is a world-wide commodity) and the
Company's inability to pass these increased costs on to customers,
o change in tax or interest rates,
o change in the commercial banking environment,
o problems with the importation of the products that the Company buys in 22
countries around the world, including, but not limited to, transportation
problems or changes in the political climate of the countries involved,
including the maintenance by these countries of Most Favored Nation status
with the United States of America, and
o other uncertainties, all of which are difficult to predict and many of
which are beyond the control of the Company.
The Company does not intend to update forward-looking statements.
2
THE LEATHER FACTORY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000............................... 4
Consolidated Statements of Income
Three months ended March 31, 2001 and 2000......................... 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2001 and 2000......................... 6
Consolidated Statements of Stockholders' Equity
Three months ended March 31, 2001 and 2000......................... 7
Notes to Consolidated Financial Statements.......................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 13
SIGNATURES.............................................................. 13
3
- --------------------------------------------------------------------------------
THE LEATHER FACTORY, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
March 31, December 31,
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ -- $ 234,141
Cash restricted for payment on revolving credit facility 355,402 390,467
Accounts receivable-trade, net of allowance for doubtful accounts
of $357,000 and $338,000 in 2001 and 2000, respectively 2,557,269 2,191,996
Inventory 8,383,248 9,205,898
Deferred income taxes 130,069 130,802
Other current assets 440,575 510,473
------------ ------------
Total current assets 11,866,563 12,663,777
------------ ------------
PROPERTY AND EQUIPMENT, at cost 4,110,832 3,657,601
Less-accumulated depreciation and amortization (2,607,512) (2,494,732)
------------ ------------
Property and equipment, net 1,503,320 1,162,869
GOODWILL, net of accumulated amortization of $1,423,000
and $1,367,000 in 2001 and 2000, respectively 4,894,074 4,964,704
OTHER INTANGIBLES, net of accumulated amortization of
$125,000 and $100,000, in 2001 and 2000, respectively 593,977 615,647
OTHER assets
280,160 279,082
------------ ------------
$ 19,138,094 $ 19,686,079
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,003,398 $ 2,159,910
Accrued expenses and other liabilities 801,510 1,290,613
Income taxes payable 287,908 94,795
Notes payable and current maturities of long-term debt 5,109,239 5,759,626
------------ ------------
Total current liabilities 8,202,055 9,304,944
------------ ------------
DEFERRED INCOME TAXES 69,847 72,473
NOTES PAYABLE AND LONG-TERM DEBT, net of current maturities 21,553 13,025
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $0.10 par value; 20,000,000
shares authorized, none issued or outstanding -- --
Common stock, $0.0024 par value; 25,000,000 shares
authorized, 9,968,161 and 9,908,161 shares issued
and outstanding at 2001 and 2000, respectively 23,924 23,780
Paid-in capital 4,006,201 3,946,608
Retained earnings 6,969,037 6,471,754
Less: Notes receivable - secured by common stock (118,589) (120,339)
Accumulated other comprehensive loss (35,934) (26,166)
------------ ------------
Total stockholders' equity 10,844,639 10,295,637
------------ ------------
$ 19,138,094 $ 19,686,079
============ ============
The accompanying notes are an integral part of these financial statements.
4
- --------------------------------------------------------------------------------
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
---------- ----------
NET SALES $9,372,613 $7,405,557
COST OF SALES 4,488,397 3,834,966
---------- ----------
Gross profit 4,884,216 3,570,591
OPERATING EXPENSES 3,908,877 2,778,389
---------- ----------
INCOME FROM OPERATIONS 975,339 792,202
OTHER EXPENSE:
Interest expense 148,593 169,195
Other, net 7,291 5,342
---------- ----------
Total other expense 155,884 174,537
---------- ----------
INCOME BEFORE INCOME TAXES 819,455 617,665
PROVISION FOR INCOME TAXES 322,172 233,723
---------- ----------
NET INCOME $ 497,283 $ 383,942
========== ==========
NET INCOME (LOSS) PER COMMON SHARE $ 0.05 $ 0.04
========== ==========
NET INCOME (LOSS) PER COMMON SHARE--Assuming Dilution $ 0.05 $ 0.04
========== ==========
The accompanying notes are an integral part of these financial statements.
5
- --------------------------------------------------------------------------------
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 497,283 $ 383,942
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation & amortization 193,643 141,242
Amortization of deferred financing costs 11,438 15,235
Other (11,662) 8,866
Net changes in assets and liabilities:
Accounts receivable-trade, net (365,273) 153,382
Inventory 822,650 596,150
Income taxes 193,113 (187,309)
Other current assets 69,898 (224,649)
Accounts payable (156,510) (463,634)
Accrued expenses and other liabilities (489,104) (268,789)
--------- ---------
Total adjustments 268,193 (229,506)
--------- ---------
Net cash provided by operating activities 765,476 154,436
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (453,230) (30,961)
Increase in other assets (1,078) --
Other intangible costs -- 426
--------- ---------
Net cash used in investing activities (454,308) (30,535)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in revolving credit loans (635,354) (84,692)
Proceeds from notes payable and long-term debt
18,676 --
Payments on notes payable and long-term debt (25,182) (112,212)
Decrease in cash restricted for payment on revolving credit facility 35,064 90,661
Payments received on notes secured by common stock 1,750 3,188
Proceeds from issuance of common stock 59,737 10,000
--------- ---------
Net cash used in financing activities (545,309) (93,055)
--------- ---------
NET INCREASE (DECREASE) IN CASH (234,141) 30,846
CASH, beginning of period 234,141 134,465
--------- ---------
CASH, end of period $ -- $ 165,311
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 148,337 $ 157,391
Income taxes paid during the period, net of (refunds) 135,248 409,631
The accompanying notes are an integral part of these financial statements.
6
- --------------------------------------------------------------------------------
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
Common Stock Notes Accumulated
--------------------------- receivable Other
Number Par Paid-in Retained - secured by Cumulative
of shares value capital earnings common stock Loss
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 9,853,161 $ 23,648 $ 3,901,740 $ 4,930,434 $ (153,416) $ (21,981)
Payments on notes receivable -
secured by common stock -- -- -- -- 3,188 --
Shares issued - employee
Stock options exercised 20,000 48 9,952 -- -- --
Net Income -- -- -- 383,942 -- --
Translation adjustment -- -- -- -- -- (144)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 2000 9,873,161 $ 23,696 $ 3,911,692 $ 5,314,376 $ (150,228) $ (22,125)
============ ============ ============ ============ ============ ============
BALANCE, December 31, 2000 9,908,161 $ 23,780 $ 3,946,608 $ 6,471,754 $ (120,339) $ (26,166)
Payments on notes receivable -
secured by common stock -- -- -- -- 1,750 --
Shares issued - employee
Stock options exercised 60,000 144 59,593 -- -- --
Net Income -- -- -- 497,283 -- --
Translation adjustment -- -- -- -- -- (9,768)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 2001 9,968,161 $ 23,924 $ 4,006,201 $ 6,969,037 $ (118,589) $ (35,934)
============ ============ ============ ============ ============ ============
Comprehensive
Total Income (Loss)
------------ ------------
BALANCE, December 31, 1999 $ 8,680,425
Payments on notes receivable -
secured by common stock 3,188
Shares issued - employee
Stock options exercised 10,000
Net Income 383,942 383,942
Translation adjustment (144) (144)
------------
BALANCE, March 31, 2000 $ 9,077,411
============
------------
Comprehensive income for the three months ended March 31, 2000 $ 383,798
============
BALANCE, December 31, 2000 10,295,637
Payments on notes receivable -
secured by common stock 1,750
Shares issued - employee
Stock options exercised 59,737
Net Income 497,283 497,283
Translation adjustment (9,768) (9,768)
------------
BALANCE, March 31, 2001 $ 10,844,639
============
------------
Comprehensive income for the three months ended March 31, 2001 $ 487,515
============
The accompanying notes are an integral part of these financial statements.
7
THE LEATHER FACTORY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly its financial position as of March 31,
2001 and December 31, 2000, and the results of operations and cash flows for the
three-month periods ended March 31, 2001 and 2000. The results of operations for
the three-month period are not necessarily indicative of the results to be
expected for the full fiscal year. The consolidated financial statements should
be read in conjunction with the financial statements and disclosures contained
in the Company's 2000 Annual Report on Form 10-K ("Annual Report").
2. INVENTORY
The components of inventory consist of the following:
As of
---------------------------
March 31, December 31,
2001 2000
----------- ------------
Finished goods held for sale $ 7,331,130 $ 8,175,429
Raw materials and work in process 1,052,118 1,030,469
----------- -----------
$ 8,383,248 $ 9,205,898
=========== ============
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share ("EPS"):
Three Months Ended March 31,
----------------------------
2001 2000
----------- -----------
Numerator:
Net income $ 497,283 $ 383,942
----------- -----------
Numerator for basic and diluted earnings per share 497,283 383,942
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 9,949,494 9,859,754
Effect of dilutive securities:
Stock options 92,424 101,236
Warrants 162,690 160,216
----------- -----------
Dilutive potential common shares 255,114 261,452
----------- -----------
Denominator for diluted earnings per share -
weighted-average shares 10,204,608 10,121,206
=========== ===========
Basic earnings per share $ 0.05 $ 0.04
=========== ===========
Diluted earnings per share $ 0.05 $ 0.04
=========== ===========
Unexercised stock options owned by certain employees and directors to purchase
16,000 and 6,000 shares of common stock as of March 31, 2001 and 2000,
respectively, were not included in the computations of diluted EPS because the
options' exercise prices were greater than or equal to the average market price
of the common stock during the period.
8
4. SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes standards for public companies relating to the
reporting of financial and descriptive information about their operating
segments in financial statements. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by chief operating decision makers in deciding how to
allocate resources and in accessing performance.
The Company identifies its segments based on the activities of three distinct
businesses: The Leather Factory, which sells product to both wholesale and
retail customers, consists of a chain of sales/distribution units located in the
United States and Canada; Tandy Leather Company, which sells product throughout
the United States via the Internet and mail-order, and internationally through
authorized dealers; and Roberts, Cushman & Company, which manufactures
decorative hat trims sold directly to hat manufactures and distributors.
The Company previously defined its operations as consisting of a single
reporting segment as provided for under the aggregation criteria of SFAS No.
131. During 2000, the Company revised its presentation of segment information to
reflect the Company initiative to establish strategic business units.
The Company's reportable operating segments have been determined as separately
identifiable business units. The Company measures segment earnings as operating
earnings, defined as income before interest and income taxes. The "Tandy Leather
Company" column contains operating results beginning after its November 30, 2000
acquisition.
The Leather Tandy Leather Roberts,
Factory Company Cushman & Co Total
------------ ------------ ------------ ------------
For the quarter ended March 31, 2001
Net Sales $ 7,103,792 $ 1,775,116 $ 493,705 $ 9,372,613
Gross Profit 3,764,419 978,310 141,487 4,884,216
Operating earnings (loss) 1,003,701 (19,664) (8,698) 975,339
Interest expense (148,593) -- -- (148,593)
Other, net (7,444) 153 -- (7,291)
------------
Income (loss) before income taxes 883,620 (19,511) (44,654) 819,455
------------
Depreciation and amortization 131,044 35,861 38,176 205,081
Total assets $ 10,852,853 $ 3,213,420 $ 5,071,821 $ 19,138,094
------------ ------------ ------------ ------------
For the quarter ended March 31, 2000
Net Sales $ 6,847,545 -- $ 558,012 $ 7,405,557
Gross Profit 3,368,265 -- 202,326 3,570,591
Operating earnings (loss) 678,633 -- 113,569 792,202
Interest expense (169,195) -- -- (169,195)
Other, net (5,342) -- -- (5,342)
------------
Income (loss) before income taxes 588,666 -- 28,999 617,665
------------
Depreciation and amortization 117,327 -- 39,150 156,477
Total assets $ 12,259,079 -- $ 5,233,368 $ 17,492,447
------------ ------------ ------------ ------------
Net sales for geographic areas was as follows: Three months ended
March 31, 2001 March 31, 2000
-------------- --------------
United States $ 8,869,011 $ 7,093,710
All other countries 503,602 311,847
------------ ------------
$ 9,372,613 $ 7,405,557
============ ============
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
- -------
The Leather Factory, Inc. ("TLF" or the "Company") is a Delaware corporation
whose common stock trades on the American Stock Exchange under the symbol "TLF".
The Company is managed on a business entity basis, with those businesses being
TLF, Tandy Leather Company ("Tandy Leather"), and Roberts, Cushman & Company,
Inc. ("Cushman"). See Note 4 to the Consolidated Financial Statements for
additional information concerning the Company's segments.
TLF is an international wholesale manufacturer and distributor of a broad
product line of leather, leatherworking tools, buckles and other belt supplies,
shoe care and repair supplies, leather dyes and finishes, adornments for belts,
bags, and garments, saddle and tack hardware, and do-it-yourself leathercraft
kits. We also carry a product line of small finished leather goods such as cigar
cases, wallets and western accessories distributed under the name "Royal Crown
Custom Leather". Tandy Leather sells the same products as TLF. Roberts, Cushman
& Company, Inc. produces and sells a related product line of hat trims in
braids, leather and woven fabrics.
As previously disclosed, the Company acquired the operating assets of TLC
Direct, Inc. and Tandy Leather Dealer, Inc. (collectively called the "Sellers")
on November 30, 2000 to form Tandy Leather Company. The Sellers were
subsidiaries of Tandycrafts, Inc. Further details regarding the Tandy Leather
acquisition, including the consideration paid, are provided in Note 12 to the
Consolidated Financial Statements contained in the Company's 2000 Annual Report
on Form 10-K and the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 15, 2000, as amended on February
14, 2001.
Results of Operations
- ---------------------
Income Statement Comparison
The following table sets forth, for the interim periods indicated, certain items
from the Company's Consolidated Statements of Income expressed as a percentage
of net sales and the increase (decrease) in dollars and percent from 2000 to
2001:
% of Net Sales
Quarterly period ended
March 31, Change in $ and %
---------------------- --------------------------
2001 2000 $ Change % Change
--------- --------- -------------- ---------
Net sales 100.0% 100.0% $ 1,967,056 26.56%
Cost of sales 47.9 51.8 653,431 17.04
--------- --------- --------------
Gross Profit 52.1 48.2 1,313,625 36.79
Operating expenses 41.7 37.5 1,130,488 40.69
--------- --------- --------------
Income from operations 10.4 10.7 183,137 23.12
Interest expense and other 1.7 2.4 (18,653) (10.69)
--------- --------- --------------
Income before income taxes 8.7 8.3 201,790 32.67
Income tax provision 3.4 3.2 88,449 37.84
--------- --------- --------------
Net income 5.3% 5.1% $ 113,341 29.52
========= ========= ==============
Revenues
The Company produced another quarter of strong sales, totaling $9.4 million for
the first quarter of 2001 compared to $7.4 million for the first quarter of
2000. Tandy Leather's sales of $1.8 million accounted for the majority of the
increase. Two new sales units opened since October 2000 contributed sales of
$215,000 in the first quarter of 2001. Our retail sales continue to climb each
quarter, producing a 22% increase over first quarter 2000 retail sales. Sales to
our craft customers generated $190,000 in sales above the first quarter of 2000,
primarily due to expanded programs to our largest accounts. Leather is again
becoming a popular item in crafts and fashion. New products combined with
additional items being sold to the major retailers have resulted in our crafts
sales trending upward.
10
Our sales to the shoe care/repair market continue its intentional decline as
historically, this market does not meet the Company's gross margins targets. The
sales decrease to this market for the first quarter of 2001 was offset by steady
increases in sales to other wholesale customer markets, such as small
manufacturers. Our Authorized Sales Center ("ASC") program generated strong
sales again in the current quarter - an 18% increase over this same category a
year ago. Export sales, institutional sales (prisons, prisoners, schools,
hospitals), and other wholesale sales remained relatively constant compared to
last year at this time.
Costs, Gross Profit, and Expenses
Cost of sales as a percentage of revenue was 47.9% for the first quarter of 2001
as compared to 51.8% for the same quarter in 2000. This translates into gross
profit margins of 52.1% and 48.2% for the quarters ended March 31, 2001 and
2000, respectively. This improvement is primarily the result of the continued
change in our sales mix and our aggressive purchasing of product. Over the past
several years, our retail to wholesale ratio has shifted from 10%/90% to a
20%/80% mix. For the first quarter of 2001, our retail sales were 22% of our
total sales. As retail sales historically produce the highest profit margins,
the growth of retail business has positively impacted our cost of sales and
gross profit percentages.
Operating expenses were $1,130,000 higher in the first quarter of 2001 than in
the first quarter of 2000. Tandy Leather contributed $998,000 of this increase.
As a percentage of sales, excluding the impact of Tandy Leather, operating
expenses increased less than 1% of sales from last year's totals. The increase
is due primarily to increases in advertising expenses. Retail sales historically
bring higher margins; however, they also require an increase in advertising
efforts. Direct mail pieces must be distributed more often and with more color
to get the attention of the retail customer. Higher mailing frequency along with
the increase in postal rates have accounted for the majority of the increase in
our advertising costs. Tandy Leather presently operates less efficiently than
TLF as operating expenses were 56% of sales for the first quarter of 2001
compared to 38% for TLF. Management is working diligently to improve Tandy
Leather's operating efficiency and believes a ratio more consistent with that of
TLF can be achieved.
The Company has experienced some recent increases in its costs of leather, and
we anticipate that leather prices paid by us may increase further as a result of
the foot and mouth and mad cow diseases in Europe. The Company is taking some
steps to address price increases (described below), but the Company's profit
margins may be adversely affected, despite these efforts.
Other (Income) Expense
Other expenses were down 10.7% from 2000. This reduction is primarily in
interest expense due to the decrease in average outstanding debt balances and
lower average interest rates in 2001 as compared to 2000.
11
Net Income
The Company reported net income of $497,000 during the first quarter of 2001
compared to net income of $384,000 for the same period a year ago. The
significant improvement was principally due to the higher gross profit margins
earned on the increased retail sales.
Capital Resources, Liquidity and Financial Condition
- ----------------------------------------------------
The primary sources of liquidity and capital resources during the first quarter
of 2001 were funds provided by operating activities in the amount of $765,000
and the Company's Credit and Security Agreement with Wells Fargo Business
Credit, Inc. ("WFBC"). The largest portion of the operating cash flow was used
to pay down debt balances, other liabilities, and purchase property and
equipment. Approximately 48% of 2001 capital spending was for new computer
equipment and software with the remainder split between leasehold improvements
and equipment.
The Company also uses a revolving credit facility under the Credit and Security
Agreement to manage cash flow. Because extra cash was applied to the balance on
this revolving credit facility, the Company recorded a zero balance of
unrestricted cash at March 31, 2001. At the same date, however, the Company had
in excess of $1 million in available credit under the revolving credit facility.
The Company's investment in accounts receivable was $2.5 million at March 31,
2001, up $365,000 from $2.2 million at year-end 2000. This is a result of an
increase in credit sales in the later part of the quarter ended March 31, 2001
as compared to that of quarter ended December 31, 2000. Inventory decreased
$823,000 to $8.4 million at March 31, 2001 from $9.2 million at year-end 2000.
Inventory turnover increased to an annualized rate of 4.26 times during the
first quarter of 2001, an improvement over the turnover of 3.64 times for all of
2000. Management believes a realistic turnover rate is between 3.5 and 4.5 turns
per year and is pleased with the rate for the first quarter. Because of
uncertainties following the foot and mouth disease and mad cow scare in Europe,
we are attempting to maintain a certain amount of stability in availability and
price by purchasing larger quantities of leather in bulk. This step may reduce
the number of inventory turns in the next several quarters.
Accounts payable decreased 7.25% to $2.0 million at the end of the first
quarter, due primarily to the operating cash flow generated from the decrease in
inventory levels for the quarter.
Under the Credit and Security Agreement, WFBC agreed to provide a revolving
credit facility of up to $8,500,000. On November 30, 2000, the Company entered
into the First Amendment to the Credit and Security Agreement ("the Amendment")
with WFBC. There, WFBC consented to the Tandy leather transaction and amended
certain financial tests to reflect the acquisition of the Tandy Leather assets,
to make previously contemplated extensions of these tests, and to raise the
standards required in those tests based on the Company's improved financial
performance since the credit agreement was originally signed.
The revolving credit facility with WFBC is based upon the level of the Company's
accounts receivable and inventory. At March 31, 2001 and December 31, 2000, the
available and unused portion of the credit facility was approximately $1,013,000
and $885,000, respectively.
The Company believes that the current sources of liquidity and capital resources
will be sufficient to fund current operations and the opening of any potential
new sales/distribution units. In 2001, the funding for the opening of any new
units is expected to be provided by operating leases, cash flows from operating
activities, and the revolving credit facility.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's Credit Facility includes loans with interest rates that vary with
changes in the prime rate. An increase of one percentage point in the prime rate
would not have a material impact on the Company's future earnings.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
On February 14, 2001, the Company amended its Current Report on Form 8-K that
was originally filed on December 15, 2000. This amendment included the Financial
Statements of Businesses Acquired and Pro Forma Financial Information (Items
7(a) & (b)) pertaining to the acquisition of the assets of Tandy Leather
Company.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LEATHER FACTORY, INC.
(Registrant)
Date: May 14, 2001 By: /s/ Wray Thompson
----------------------------------
Wray Thompson
Chairman of the Board and
Chief Executive Officer
Date: May 14, 2001 By: /s/ Shannon L. Greene
----------------------------------
Shannon L. Greene
Chief Financial Officer and
Treasurer (Chief Accounting
Officer)
13