-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HsSAakyxEKjBcvMsetVn/TNjJJdvazvi2pl66/kMwKfJQ/nvqDv/yyioShpjXnhy f0RtjOJcHtQhZq4sC1xaxw== 0000950134-00-004341.txt : 20000515 0000950134-00-004341.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950134-00-004341 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANDY BRANDS ACCESSORIES INC CENTRAL INDEX KEY: 0000869487 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 752349915 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18927 FILM NUMBER: 627835 BUSINESS ADDRESS: STREET 1: 690 E LAMAR BLVD STE 200 CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8172654113 MAIL ADDRESS: STREET 1: 690 E LAMAR BLVD CITY: ARLINGTON STATE: TX ZIP: 76011 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 2000 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q Quarterly Report Pursuant To Section 13 or 15 (d) of the Securities Exchange Act of 1934 -------------------- For the Period Ended March 31, 2000 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, 2000 Common stock, $1 par value 5,808,968 =============================================================================== 2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Form 10-Q Quarter Ended March 31, 2000 TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION
Item Page No. - ---- -------- 1. Consolidated Financial Statements 3 - 9 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13 3. Qualitative and Quantitative Disclosures About Market Risk 14 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 INDEX TO EXHIBITS 16
2 3 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 ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Gross sales, less discounts, returns and allowances $ 39,686 $ 38,247 $ 150,508 $ 136,650 Cost of goods sold 25,665 24,162 95,938 86,016 ------------ ------------ ------------ ------------ Gross margin 14,021 14,085 54,570 50,634 Selling, general and administrative expenses 11,984 9,882 37,571 33,396 Depreciation and amortization 861 760 2,560 2,314 ------------ ------------ ------------ ------------ Total operating expenses 12,845 10,642 40,131 35,710 ------------ ------------ ------------ ------------ Operating income 1,176 3,443 14,439 14,924 Interest expense (726) (716) (2,541) (2,304) Royalty income and early terminations of license agreements 646 73 1,720 117 ------------ ------------ ------------ ------------ Income before provision for income taxes 1,096 2,800 13,618 12,737 Provision for income taxes 425 1,085 5,286 4,960 ------------ ------------ ------------ ------------ Net income $ 671 $ 1,715 $ 8,332 $ 7,777 ============ ============ ============ ============ Earnings per common share $ 0.12 $ 0.30 $ 1.44 $ 1.36 ============ ============ ============ ============ Earnings per common share - assuming dilution $ 0.12 $ 0.29 $ 1.42 $ 1.34 ============ ============ ============ ============ Common shares outstanding 5,763 5,746 5,786 5,710 ============ ============ ============ ============ Common shares outstanding - assuming dilution 5,808 5,835 5,849 5,799 ============ ============ ============ ============ Cash dividends per common share None None None None
The accompanying notes are an integral part of these condensed financial statements. 3 4 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES File Number 0-18927 Form 10-Q Condensed Consolidated Balance Sheets (Dollars in thousands)
March 31, June 30, 2000 1999 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,397 $ 180 Accounts receivable, net 33,604 33,514 Inventories: Raw materials and work in process 4,959 6,879 Finished goods 48,040 48,680 Other current assets 2,591 1,823 ------------ ------------ Total current assets 90,591 91,076 ------------ ------------ Property and equipment, at cost 18,567 17,187 Accumulated depreciation (8,089) (6,722) ------------ ------------ Net property and equipment 10,478 10,465 ------------ ------------ Other assets: Goodwill, less amortization 11,440 10,373 Other assets, less amortization 8,000 8,224 ------------ ------------ Total other assets 19,440 18,597 ------------ ------------ TOTAL ASSETS $ 120,509 $ 120,138 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,935 $ 5,835 Accrued expenses 5,187 4,394 ------------ ------------ Total current liabilities 8,122 10,229 ------------ ------------ Other liabilities: Notes payable 42,025 47,425 Other noncurrent liabilities 193 292 ------------ ------------ Total other liabilities 42,218 47,717 ------------ ------------ Stockholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $1 par value, 10,000,000 shares authorized, 5,808,968 shares and 5,761,952 shares issued and outstanding as of March 31, 2000, and June 30, 1999, respectively 5,809 5,762 Additional paid-in capital 22,446 21,900 Cumulative other comprehensive income (320) (381) Retained earnings 43,243 34,911 Treasury stock, at cost (1,009) -- ------------ ------------ Total stockholders' equity 70,169 62,192 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,509 $ 120,138 ============ ============
The accompanying notes are an integral part of these condensed financial statements. 4 5 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, ------------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income $ 8,332 $ 7,777 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 1,519 1,276 Amortization 1,229 1,146 Other (130) (82) Change in assets and liabilities: Accounts receivable 741 (4,188) Inventories 3,536 (2,859) Other assets (656) (90) Accounts payable (2,900) (3,640) Accrued expenses 474 (2,217) ------------ ------------ Net cash provided by (used for) operating activities 12,145 (2,877) ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (1,551) (2,413) Purchase of Frank Spielberg, LLC (3,561) -- ------------ ------------ Net cash used for investing activities (5,112) (2,413) ------------ ------------ Cash flows from financing activities: Exercise of employee stock options 114 222 Sale of stock to stock purchase program 1,129 1,103 Purchase of treasury stock (1,659) -- Proceeds from borrowings 68,320 52,392 Payments under borrowings (73,720) (48,292) ------------ ------------ Net cash provided by (used for) financing activities (5,816) 5,425 ------------ ------------ Net increase in cash and cash equivalents 1,217 135 Cash and cash equivalents at beginning of period 180 283 ------------ ------------ Cash and cash equivalents at end of period $ 1,397 $ 418 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 2,909 $ 2,200 Income taxes 4,855 3,344 Noncash activities: None
The accompanying notes are an integral part of these condensed financial statements. 5 6 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, 2000, are not necessarily indicative of the results that may be expected for the year ended June 30, 2000. 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, 1999. Note 2 - Acquisitions On July 16, 1999, the Company purchased certain assets of Frank Spielberg Sales LLC ("Spielberg"), a handbag designer and marketer based in St. Louis, Missouri, for approximately $3.6 million. The cash purchase price was provided by drawing on existing bank lines. Spielberg supplies proprietary design, marketing and sourcing expertise for handbags under department store private labels and direct sales to retailers. Spielberg will continue to operate from its St. Louis, New York City and Hong Kong offices. The acquisition was accounted for under the purchase method of accounting and the resultant goodwill of approximately $1,675,000 is amortized over 20 years. The pro-forma effects of this acquisition are not material. Note 3 - Comprehensive Income. The components of comprehensive income, net of related tax, for the three and nine months ended March 31, 2000 and 1999 are as follows (in thousands):
Three Months Nine Months Ended Ended March 31 March 31 ------------------------------- ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net income $ 671 $ 1,715 $ 8,332 $ 7,777 Foreign currency translation adjustments (12) 53 61 (154) ------------ ------------ ------------ ------------ Comprehensive income $ 659 $ 1,768 $ 8,393 $ 7,623 ============ ============ ============ ============
6 7 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed 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 ------------------------------ ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Numerator for basic and diluted earnings per share: Net income $ 671 $ 1,715 $ 8,332 $ 7,777 ============ ============ ============ ============ Denominator: Weighted average shares outstanding 5,750 5,730 5,770 5,693 Contingently issuable shares 13 16 16 17 ------------ ------------ ------------ ------------ Denominator for basic earnings per share - weighted average shares 5,763 5,746 5,786 5,710 Effect of dilutive securities: Employee stock options 37 75 53 76 Director stock options 8 14 10 13 ------------ ------------ ------------ ------------ Dilutive potential common shares 45 89 63 89 Denominator for diluted earnings per share - adjusted weighted - average shares 5,808 5,835 5,849 5,799 ============ ============ ============ ============ Basic earnings per share $ 0.12 $ 0.30 $ 1.44 $ 1.36 ============ ============ ============ ============ Diluted earnings per share $ 0.12 $ 0.29 $ 1.42 $ 1.34 ============ ============ ============ ============
7 8 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Statements (Unaudited) Note 5 - Disclosures about Segments of an Enterprise and Related Information. The Company sells its products to a variety of retail outlets, including national chain stores, discount stores, major department stores, specialty stores, catalog retailers and the retail exchange operations of the United States military. The Company and its corresponding customer relationships are organized along Men's and Women's product lines. As a result, the Company has two reportable segments: (1) Men's Accessories consisting of belts, wallets, suspenders and other small leather goods and (2) Women's Accessories consisting of belts, wallets, handbags, socks, scarves, hats and hair accessories. General corporate expenses are allocated to each segment based on the respective segment's asset base. Depreciation and amortization expense related to assets recorded on the Company's corporate accounting records are allocated to each segment as described above. Management measures profit or loss on each segment based upon income or loss before taxes utilizing the accounting policies consistent in all material respects with those described in Note 1 of the Company's 1999 Annual Report. No intersegment revenue is recorded. Information regarding operations and assets by segment are as follows (in thousands):
Three Months Ended Nine Months Ended March 31, March 31, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenue from external customers: Men's accessories $ 24,323 $ 23,007 $ 86,383 $ 82,160 Women's accessories 15,363 15,240 64,125 54,490 ------------ ------------ ------------ ------------ $ 39,686 $ 38,247 $ 150,508 $ 136,650 ============ ============ ============ ============ Operating income (loss) (1): Men's accessories 2,290 2,827 11,458 10,750 Women's accessories (1,114) 616 2,981 4,174 ------------ ------------ ------------ ------------ $ 1,176 $ 3,443 $ 14,439 $ 14,924 ============ ============ ============ ============ Interest expense (726) (716) (2,541) (2,304) Other income (2) 646 73 1,720 117 ------------ ------------ ------------ ------------ Income before income taxes $ 1,096 $ 2,800 $ 13,618 $ 12,737 ============ ============ ============ ============ Depreciation and amortization expense: Men's accessories $ 577 $ 521 $ 1,700 $ 1,647 Women's accessories 284 239 860 667 ------------ ------------ ------------ ------------ $ 861 $ 760 $ 2,560 $ 2,314 ============ ============ ============ ============ Capital expenditures: Men's accessories $ 94 $ (66) $ 136 $ 870 Women's accessories 232 15 493 175 Corporate 228 404 1,143 1,368 ------------ ------------ ------------ ------------ $ 554 $ 353 $ 1,772 $ 2,413 ============ ============ ============ ============
(1) Operating income consists of net sales less cost of sales, specifically identifiable selling, general and administrative expenses. (2) Other (income) expense includes royalty income on corporate tradenames and the early terminations of a license agreements (See Note 7) not specifically identifiable to a segment. 8 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Statements (Unaudited) Note 6 - Stock Repurchase Program On April 26, 2000, the Company's Board of Directors approved a plan to repurchase, from time to time in the open market or through negotiated transactions, shares of the Company's common stock at an aggregate purchase price of up to $2,000,000 (the "repurchase program"). This program is an extension of the $2,000,000 repurchase program the Company initiated on October 20, 1999. Any open market purchases will be at prevailing market prices. The timing of any repurchases will depend on market conditions, market price, and management's assessment of the Company's liquidity and cash flow needs. Any repurchased shares will be added to the Company's treasury shares and may be used for the Company's stock plans and other corporate purposes. The funds required for the repurchases will be provided from the Company's current cash balances, operating cash flow, or the Company's credit facility. During the nine months ended March 31, 2000, the Company repurchased 140,800 shares of treasury stock under the repurchase program at a cost of approximately $1,659,000. During the nine months ended March 31, 2000, 50,452 shares of treasury stock were reissued to the Company's employee stock purchase program. Note 7 - Terminations of License Agreements On November 9, 1999, the Company and JONES APPAREL GROUP amended their existing licensing agreement. Under the amended agreement Tandy Brands Accessories will continue to design and market men's belts and personal leather goods as well as women's small leather goods under various JONES NEW YORK(R) brands, but will no longer design and market women's handbags under any JONES NEW YORK(R) brands. As compensation for the early termination of women's handbag license rights, Jones Apparel Group paid the Company $1,500,000 in cash, of which a portion was used to wind down functions related to the license arrangements. Consequently, the results for the nine-month period ended March 31, 2000 include a one-time benefit, net of related costs of $1,000,000 from the termination of this licensing agreement. On March 3, 2000, the Company and JONES APPAREL GROUP amended their existing licensing agreement. Under the amended agreement Tandy Brands Accessories will continue to design and market men's small leather goods and belts under various JONES NEW YORK(R) brands, but will no longer design and market women's small leather goods under any JONES NEW YORK(R) brands. As compensation for the early termination of the small leather goods license rights, Jones Apparel Group paid Tandy Brands $800,000 in cash. Additionally, Jones Apparel reimbursed Tandy Brands for its current on-hand small leather goods inventory of approximately $950,000. Consequently, the results for the three and nine month periods ended March 31, 2000 include a one-time benefit, net of related costs of $600,000 from the termination of this licensing agreement. 9 10 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 and suspenders. Tandy Brands' merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, including Jones New York(R), Florsheim(R), Perry Ellis(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 Sales and gross margin data from the Company's segments for the three and nine months ended fiscal 2000 compared to the same periods last year were as follows (in thousands):
Three Months Ended Nine Months Ended March 31, March 31, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net sales: Men's accessories $ 24,323 $ 23,007 $ 86,383 $ 82,160 Women's accessories 15,363 15,240 64,125 54,490 ------------ ------------ ------------ ------------ Total net sales $ 39,686 $ 38,247 $ 150,508 $ 136,650 ============ ============ ============ ============ Gross margin: Men's accessories $ 9,484 $ 9,371 $ 34,161 $ 32,736 Women's accessories 4,537 4,714 20,409 17,898 ------------ ------------ ------------ ------------ Total gross margin $ 14,021 $ 14,085 $ 54,570 $ 50,634 ============ ============ ============ ============ Gross margin as a percentage of sales: Men's accessories 39.0% 40.7% 39.5% 39.8% Women's accessories 29.5% 30.9% 31.8% 32.8% Total 35.3% 36.8% 36.3% 37.1%
10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES THREE AND NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE AND NINE MONTHS ENDED MARCH 31, 1999 NET SALES For the three-month period ended March 31, 2000, net sales increased 3.8% to $39,686,000 as compared to net sales of $38,247,000 for the same period last year. The overall increase was attributable to higher sales volume in existing men's product lines and sales from the purchase of assets of Frank Spielberg Sales, LLC. Although the Company achieved consistent core growth in men's accessories, the overall sales increase did not offset decreases in women's small leather goods and handbag sales resulting in a 2% decrease in core product sales as compared to prior year quarter. The lower than expected sales were caused primarily by weak reorders as a result of soft holiday retail sales and decreased women's accessories trend item sales as compared to the same period last year. Additionally, sales were impacted by the discontinuation of business of several retail customers as a result of industry consolidation, store closures and bankruptcies. These sales pressures were primarily concentrated on our women's accessory business including our small leather goods, belts and trend item product categories. The aforementioned sales shortfall in women's accessories had a disproportionate effect on selling, general and administrative expenses as a percentage of sales and net income during the three-month period ended March 31, 2000. For the nine-month period ended March 31, 2000, net sales increased 10.1% to $150,508,000 as compared to net sales of $136,650,000 for the same period last year. The sales increases were attributable to higher sales volume in men's small leather goods and handbag sales sold to various mass merchants. GROSS MARGINS Gross margins for the three-month period ended March 31, 2000 decreased $64,000, or 0.5% as compared to the same period for the prior year. As a percentage of sales, men's gross margin decreased 1.7% due to a higher sales mix of mass merchant sales compared to the prior year. The women's gross margin percentage decreased 1.4% and 1.0%, respectively for the three and nine month periods ended March 31, 2000 as compared to the same periods last year. The decrease is the result of the termination of the JONES NEW YORK(R) handbag and small leather good product lines (See Note 7) as well as higher mass merchant sales as compared to the same periods in the prior year. OPERATING EXPENSES Selling, general and administrative expenses as a percentage of net sales for the three and nine months ended March 31, 2000 increased to 30.2% and 25.0%, respectively as compared to 25.8% and 24.4% for the same periods in the prior year, respectively. The increase resulted from the timing of the wind down of the JONES NEW YORK handbag product line, the launch of the Rolfs(R) handbag line as well as increased levels of selling, general and administrative expenses in anticipation of higher sales volume. Depreciation and amortization expenses increased $101,000 and $246,000 for the three and nine months ended March 31, 2000, respectively, compared to the same periods in the prior year. The increase is attributable to capital expenditures related to the Company's management information and distribution 11 12 software systems installed during fiscal 1999 and the amortization of goodwill recorded in connection with the Spielberg acquisition. Interest expense for the three and nine months ended March 31, 2000 increased $10,000 and $237,000, respectively as compared to the same periods in the prior year. The increase is primarily related to higher weighted average interest rates as compared to the same periods in the prior year. The effective tax rate for the nine months ended March 31, 2000 was 38.8% which is consistent with the same period in the prior year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Net income for the three-month period ended March 31, 2000 decreased 60.9% to $671,000, or $0.12 per diluted share, compared to net income of $1,715,000, or $0.29 per diluted share for the same period in the prior year. On March 3, 2000, the company negotiated an early termination of its small leather goods licensing agreement with Jones New York. (See Note 7). Both the three and nine month results include a one time benefit, including related costs, of $600,000 from the termination of this licensing agreement. Excluding the net benefit of the early license termination, net income for the three-month period ended March 31,2000 decreased 82.3% to $304,000, or $0.05 per diluted share from the same period last year. Net income for the nine months ended March 31, 2000 increased 7.1% to $8,332,000, or $1.42 per diluted share, compared to net income of $7,777,000, or $1.34 per diluted share, for the same period in the prior year. On March 3, 2000 and November 9, 1999, the Company negotiated an early termination of its Jones New York handbag and small leather goods licensing agreements, respectively (See Note 7). Excluding the net benefit of the early license termination realized during the second and third quarter of fiscal 2000, net income for the nine months decreased 5.5% to $7,353,000, or $1.26 per diluted share from the same period in the prior year. 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 $90,000,000, which can be used for seasonal borrowings and letters of credit. The Company's borrowings under its credit lines were $42,025,000 and $46,700,000 as of March 31, 2000 and 1999, respectively. The decrease in borrowings under these lines of credit reflects the consistent application of cash provided by operations. For the nine months ended March 31, 2000, the Company's operating activities provided cash of $12,145,000 compared to a use of cash of $2,877,000 for the same period last year. The increase was attributable to timing of cash receipt collections related to increased sales, reduced inventory levels and payments made on behalf of the termination of the Company's Jones New York handbag and small leather goods licensing agreements during the nine months ended March 31, 2000. Capital expenditures were $1,551,000 for the nine months ended March 31, 2000. The decrease of $862,000 over the same prior year period is due to the timing of capital investments during fiscal 2000. Management anticipates that the Company's level of capital investment for fiscal 2000 will approximate the prior year. Capital commitments for fiscal 2000 include leasehold improvements for a new distribution facility in Dallas, Texas, for women's accessories as well as additional hardware and software applications. 12 13 See Note 2 for a discussion of the purchase of Frank Spielberg, LLC. The Company has never paid a cash dividend on its Common Stock. The Company currently intends to retain its earnings for the foreseeable future to provide funds for the expansion of its business. The Company's existing credit agreements currently contain covenants related to the maintenance of certain financial ratios, which could impose certain limitations on the payment of dividends. See Note 6 for a discussion of the Company's stock repurchase program. The Company believes it has adequate financial resources and access to sufficient credit facilities to satisfy its future working capital needs. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES 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. 13 14 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES 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, 2000, the Company had borrowings under its credit lines of $42,025,000 bearing a weighted-average interest rate of 6.51%. In fiscal 1999, 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, 2000, the receive and pay rates related to the interest rate swap were 7.09% 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. 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, 2000. The exhibits filed as a part of this report are listed below. Exhibit No. Description 27.1 Financial Data Schedule 14 15 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 12, 2000 15 16 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 4.5 Form of Rights Certificate of Tandy Brands Accessories, Inc. 8-K 11/02/99 0-18927 4.0 4.6 Amended and Restated Rights Agreement dated October 19, 1999, Between Tandy Brands Accessories, Inc. and Bank Boston, N.A. 8-K 11/02/99 0-18927 4.0 (27) Financial Data Schedule 27.1 Financial Data Schedule N/A N/A N/A N/A
16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS ACCESSORIES, INC.'S MARCH 31, 2000, FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILINGS. DOLLARS ARE IN THOUSANDS. 1,000 9-MOS JUN-30-2000 MAR-31-2000 1,397 0 35,090 1,486 52,999 90,591 18,567 8,089 120,509 8,122 42,025 0 0 5,809 64,360 120,509 150,508 150,508 95,938 95,938 2,560 0 2,541 13,618 5,286 8,332 0 0 0 8,332 1.44 1.42
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