-----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, LhokGEnFeU1W0UEgQMTMasUH56pmyyYaXn74Q2K/4KPeB5HARnzUjHQeb7cfMEoA ygmQ+WtCM1oanuKhbf8M0Q== 0000950134-01-001054.txt : 20010213 0000950134-01-001054.hdr.sgml : 20010213 ACCESSION NUMBER: 0000950134-01-001054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010212 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: 1533738 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 d84017e10-q.txt FORM 10-Q FOR QUARTER ENDED DECEMBER 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 December 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 December 31, 2000 Common stock, $1 par value 5,817,406
================================================================================ 2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED DECEMBER 31, 2000 - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION
Item Page No. -------- 1. Financial Statements 3 - 10 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 3 Qualitative and Quantitative Disclosures About Market Risk 15 PART II -- OTHER INFORMATION Item 4. Submission of Matter to a Vote of Security Holders 15 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 INDEX TO EXHIBITS 18
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 Six Months Ended Ended December 31 December 31 ---------------------------- --------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net sales 56,757 $ 57,566 $ 110,941 $ 110,822 Cost of goods sold 36,567 35,901 71,855 70,273 --------- --------- --------- --------- Gross margin 20,190 21,665 39,086 40,549 Selling, general and administrative expenses 13,437 12,920 26,943 25,587 Depreciation and amortization 1,134 866 2,192 1,699 --------- --------- --------- --------- Total operating expenses 14,571 13,786 29,135 27,286 --------- --------- --------- --------- Operating income 5,619 7,879 9,951 13,263 Interest expense (1,000) (922) (2,021) (1,815) Royalty income and early termination of license agreement 17 1,043 34 1,074 --------- --------- --------- --------- Income before provision for income taxes 4,636 8,000 7,964 12,522 Provision for income taxes 1,788 3,107 3,081 4,861 --------- --------- --------- --------- Net income $ 2,848 $ 4,893 $ 4,883 $ 7,661 ========= ========= ========= ========= Earnings per common share $ 0.51 $ 0.84 $ 0.87 $ 1.32 ========= ========= ========= ========= Earnings per common share - assuming dilution $ 0.51 $ 0.83 $ 0.87 $ 1.30 ========= ========= ========= ========= Common shares outstanding 5,578 5,802 5,595 5,799 ========= ========= ========= ========= Common shares outstanding - assuming dilution 5,582 5,868 5,604 5,871 ========= ========= ========= ========= 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)
December 31, June 30, 2000 2000 -------------- ------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 352 $ 661 Accounts receivable, net 40,166 31,105 Inventories: Raw materials and work in process 4,617 4,759 Finished goods 54,098 50,581 Other current assets 2,800 2,371 --------- --------- Total current assets 102,033 89,477 --------- --------- Property and equipment, at cost 23,786 22,317 Accumulated depreciation (10,575) (9,305) --------- --------- Net property and equipment 13,211 13,012 --------- --------- Other assets: Goodwill, less amortization 10,957 11,410 Other assets, less amortization 8,224 7,785 --------- --------- Total other assets 19,181 19,195 --------- --------- $ 134,425 $ 121,684 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,329 $ 6,547 Accrued expenses 5,973 4,004 --------- --------- Total current liabilities 13,302 10,551 --------- --------- Other liabilities: Notes payable 46,925 41,075 Other noncurrent liabilities 189 184 --------- --------- Total other liabilities 47,114 41,259 --------- --------- Stockholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $1 par value, 10,000,000 shares authorized, 5,817,406 shares and 5,808,968 shares issued and outstanding as of December 31, 2000, and June 30, 2000, respectively 5,818 5,809 Additional paid-in capital 22,353 22,426 Cumulative other comprehensive income (512) (479) Retained earnings 48,444 43,560 Treasury stock, at cost (2,094) (1,442) --------- --------- Total stockholders' equity 74,009 69,874 --------- --------- $ 134,425 $ 121,684 ========= =========
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)
Six Months Ended December 31, --------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net income $ 4,883 $ 7,661 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 1,351 941 Amortization 617 821 Other (88) 49 Change in assets and liabilities: Accounts receivable (9,061) (7,211) Inventories (3,375) 2,190 Other assets (1,054) (950) Accounts payable 782 (2,076) Accrued expenses 1,974 4,007 -------- -------- Net cash provided by (used for) operating activities (3,971) 5,432 -------- -------- Cash flows from investing activities: Purchases of property and equipment (1,469) (997) Purchase of Frank Spielberg, LLC 0 (3,561) -------- -------- Net cash used for investing activities (1,469) (4,558) -------- -------- Cash flows from financing activities: Exercise of employee stock options 23 37 Sale of stock to stock purchase program 658 791 Purchase of treasury stock (1,400) (859) Proceeds from borrowings 50,600 51,395 Payments under borrowings (44,750) (50,995) -------- -------- Net cash provided by financing activities 5,131 369 -------- -------- Net increase (decrease) in cash and cash equivalents (309) 1,243 Cash and cash equivalents at beginning of period 661 180 -------- -------- Cash and cash equivalents at end of period $ 352 $ 1,423 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,622 $ 1,460 Income taxes 2,170 2,530 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 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 six month periods ended December 31, 2000, are not necessarily indicative of the results that may be expected for the year ended June 30, 2001. 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, 2000. NOTE 2 - IMPACT OF NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of Statement No. 133, as amended on July 1, 2000, resulted in the cumulative effect of an accounting change, net of tax, of approximately $308,000 in other comprehensive income. The Company's risk management policy as it relates to derivative instruments is to mitigate, subject to market conditions, against interest rate risk. The Company does not enter into any derivative instrument for the purposes of speculative investment. The Company's overall risk management philosophy is reevaluated as business conditions arise. 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 an interest rate swap agreement to lock in a fixed interest rate for a portion of these borrowings. As a result, 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. The interest rate swap agreement as a derivative represents a valid cash flow hedge instrument under Statement No. 133. At December 31, 2000, the receive and pay rates related to the interest rate swap were 7.75% and 6.52%, respectively. 6 7 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - COMPREHENSIVE INCOME The components of comprehensive income, net of related tax, for the three and six months ended December 31, 2000 and 1999 are as follows (in thousands):
Three Months Six Months Ended Ended December 31 December 31 ---------------------- ---------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Net income $ 2,848 $ 4,893 $ 4,883 $ 7,661 Foreign currency translation adjustments 31 51 (105) 73 Cumulative effect of change in accounting principle - fair value of interest rate swap 308 Changes in the fair value of interest rate swap (235) -- (235) ------- ------- ------- ------- Comprehensive income $ 2,644 $ 4,944 $ 4,851 $ 7,734 ======= ======= ======= =======
7 8 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 Six Months Ended Ended December 31 December 31 --------------------- --------------------- 2000 1999 2000 1999 ------ ------ ------ ------ Numerator for basic and diluted earnings per share: Net income $2,848 $4,893 $4,883 $7,661 ====== ====== ====== ====== Denominator: Weighted average shares outstanding 5,564 5,784 5,582 5,782 Contingently issuable shares 14 18 13 17 ------ ------ ------ ------ Denominator for basic earnings per share - weighted average shares 5,578 5,802 5,595 5,799 Effect of dilutive securities: Employee stock options 4 56 8 61 Director stock options -- 10 1 11 ------ ------ ------ ------ Dilutive potential common shares 4 66 9 72 Denominator for diluted earnings per share - adjusted weighted-average shares 5,582 5,868 5,604 5,871 ====== ====== ====== ====== Basic earnings per share $ 0.51 $ 0.84 $ 0.87 $ 1.32 ====== ====== ====== ====== Diluted earnings per share $ 0.51 $ 0.83 $ 0.87 $ 1.30 ====== ====== ====== ======
8 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED 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 mass merchants, national chain stores, major department stores, men's and women's specialty stores, catalog retailers, grocery stores, drug stores 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 2000 Annual Report. No intersegment revenue is recorded. Information regarding operations and assets by segment are as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, --------------------------- --------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenue from external customers: Men's accessories $ 29,908 $ 33,976 $ 60,691 $ 62,060 Women's accessories 26,849 23,590 50,250 48,762 --------- --------- --------- --------- $ 56,757 $ 57,566 $ 110,941 $ 110,822 ========= ========= ========= ========= Operating income(1): Men's accessories 4,190 6,014 7,888 9,169 Women's accessories 1,429 1,865 2,063 4,094 --------- --------- --------- --------- $ 5,619 $ 7,879 $ 9,951 $ 13,263 ========= ========= ========= ========= Interest expense (1,000) (922) (2,021) (1,815) Other income(2) 17 1,043 34 1,074 --------- --------- --------- --------- Income before income taxes $ 4,636 $ 8,000 $ 7,964 $ 12,522 ========= ========= ========= ========= Depreciation and amortization expense: Men's accessories $ 735 $ 570 $ 1,391 $ 1,123 Women's accessories 399 296 801 576 --------- --------- --------- --------- $ 1,134 $ 866 $ 2,192 $ 1,699 ========= ========= ========= ========= Capital expenditures: Men's accessories $ 148 $ 12 $ 148 $ 42 Women's accessories 282 248 500 261 Corporate 544 427 821 915 --------- --------- --------- --------- $ 974 $ 687 $ 1,469 $ 1,218 ========= ========= ========= =========
(1) Operating income consists of net sales less cost of sales and specifically identifiable selling, general and administrative expenses. (2) Other income includes royalty income on corporate tradenames and the early termination of a license agreement not specifically identifiable to a segment. 9 10 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - STOCK REPURCHASE PROGRAM On October 17, 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 $4,000,000 stock repurchase plan the Company initiated in October 20, 1999 and extended in April 26, 2000. 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 six-months ended December 31, 2000, the Company repurchased 197,249 shares of treasury stock under the repurchase program at a cost of approximately $1,400,000. During the six months ended December 31, 2000, 89,657 shares of treasury stock were issued to the Company's employee stock purchase program. NOTE 7 - SUBSEQUENT EVENT On January 18, 2001, the Company acquired all of the outstanding common stock of Stagg Industries, Inc. ("Stagg") for approximately $2,750,000 in cash plus contingent consideration of up to $250,000. The cash purchase price was provided by drawing on existing bank lines. Stagg is a distributor and marketer of men's and children's belts, neckwear, small leather and other accessories to various department stores and specialty retailers. In conjunction with the purchase, the Company assumed certain liabilities of which $2,794,000 in bank indebtedness was immediately retired. 10 11 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. The Company's merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, including DOCKERS(R), 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), DON LOPER(R), ACCESSORY DESIGN GROUP(R), TEX TAN(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, catalogs, grocery and drug stores. See Note 7 to the condensed consolidated financial statements for a discussion of certain subsequent events. RESULTS OF OPERATIONS Sales and gross margin data from the Company's segments for the three and six months ended fiscal 2001 compared to the same period last year were as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, ------------------------- ------------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Net sales: Men's accessories $ 29,908 $ 33,976 $ 60,691 $ 62,060 Women's accessories 26,849 23,590 50,250 48,762 -------- -------- -------- -------- Total net sales $ 56,757 $ 57,566 $110,941 $110,822 ======== ======== ======== ======== Gross margin: Men's accessories $ 11,908 $ 13,945 $ 23,824 $ 24,677 Women's accessories 8,282 7,720 15,262 15,872 -------- -------- -------- -------- Total gross margin $ 20,190 $ 21,665 $ 39,086 $ 40,549 ======== ======== ======== ======== Gross margin as a percentage of sales: Men's accessories 39.8% 41.0% 39.3% 39.8% Women's accessories 30.8% 32.7% 30.4% 32.5% Total 35.6% 37.6% 35.2% 36.6%
11 12 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 NET SALES For the three-month period ended December 31, 2000, net sales decreased 1.4% to $56,757,000 as compared to net sales of $57,566,000 for the same period last year. Net sales of men's accessories decreased 12.0% for the three-month period ended December 31, 2000 as compared to the same period last year. The decrease in men's sales was due to the weak retail environment felt industry-wide as well as customer consolidations and bankruptcies. Net sales of women's accessories increased 13.8% for the three-month period ended December 31, 2000 as compared to the same period last year. The increase was attributable to higher sales volume of women's fashion trend items to certain mass merchants as well as an increase in women's small leather goods sales to certain department store and specialty retailers. For the six month period ended December 31, 2000, net sales increased 0.1% to $110,941,000 as compared to net sales of $110,822,000 for the same period last year. The sales increases were attributable to higher sales volume in women's accessories experienced during the second quarter of fiscal 2001. GROSS MARGINS Gross margins decreased for the three and six months ended December 31, 2000, $1,475,000 and $1,463,000, or 6.8% and 3.6%, respectively, as compared to the same periods for the prior year. As a percentage of sales, gross margins decreased 2.0% and 1.4% for the three and six months ended December 31, 2000, respectively, as compared to the same periods last year. The overall decrease was due to higher sales mix to mass merchants and the close out sales of women's fashion trend accessories resulting in the recognition of additional inventory markdowns during the three and six-month periods ended December 31, 2000 of approximately $200,000 and $458,000, respectively, 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 six months ended December 31, 2000 increased 1.3% and 1.2%, respectively, as compared to the same periods of the prior year. The increase resulted from higher wages, advertising and rent expenses. Depreciation and amortization expenses increased $268,000 and $493,000 for the three and six months ended December 31, 2000, respectively, as compared to the same periods in the prior year. The increase is attributable to depreciation on capital expenditures related to leasehold improvements and equipment for the new distribution facility in Dallas, Texas, for women's accessories as well as additional hardware and software applications. Interest expense for the three and six month periods ended December 31, 2000 increased $78,000 and $206,000 as compared to the same periods in the prior year. The increase is primarily related to higher interest rates during the six months of fiscal 2001. The effective tax rates for the three and six months ended December 31, 2000 were 38.6% and 38.7%, respectively, which are consistent with the same periods in the prior year. Net income for the three-month period ended December 31, 2000 decreased 41.8% to $2,848,000, or $0.51 per diluted share, compared to net income of $4,893,000, or $0.83 per diluted share, for the same period in the prior year. On November 2, 1999, the Company negotiated an early termination of its handbag licensing agreement with Jones New York. Both the three and six month results during fiscal 2000 include a one time benefit, including related costs, of $1,000,000 from the termination of this licensing agreement. Excluding the net benefit of the early license termination, net income for the three-month period ended December 31,1999 was $4,281,000, or $0.73 per diluted share. The decrease in net income was primarily due to a lower margin sales mix of women's accessories and increased selling, general and administrative expenses. 12 13 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income for the six months ended December 31, 2000 decreased 36.3% to $4,883,000, or $0.87 per diluted share, compared to net income of $7,661,000, or $1.30 per diluted share, for the same period in the prior year. Excluding the net benefit of the early license termination, net income in the prior year six- month period was $7,049,000, or $1.20 per diluted share. The decrease in net income was primarily due to a lower margin sales mix of women's accessories and increased selling, general and administrative expenses. 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 $46,925,000 and $47,825,000 as of December 31, 2000 and 1999, respectively. For the six months ended December 31, 2000, the Company's operating activities used cash of $3,971,000 compared to providing cash of $5,432,000 for the same period last year. The increase in the use of cash was attributable to lower net income and higher inventory and customer display fixture purchases. Capital expenditures were $1,469,000 for the six months ended December 31, 2000. The increase of $472,000 over the same prior year period is due to the timing of capital investments during fiscal 2001. Management anticipates that the Company's level of capital investment for fiscal 2001 will approximate the prior year. Capital commitments for fiscal 2001 include additional equipment for the Company's distribution facility in Dallas, Texas, as well as additional hardware and software applications. The Company examines the carrying value of its excess of cost over net assets acquired (Goodwill) and other intangible assets as current events and circumstances warrant to determine whether there are any impairment losses. If indicators of impairment were present in intangible assets used in operations, and future cash flows were not expected to be sufficient to recover the assets' carrying amount, an impairment loss would be charged to expense in the period identified. No event has been identified that would indicate an impairment of the value of material intangible assets recorded in the consolidated financial statements. 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 of the condensed consolidated financial statements 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. 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. 13 14 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Consolidated 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. 14 15 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 an interest rate swap agreement to lock in a fixed interest rate for a portion of these borrowings. At December 31, 2000, the Company had borrowings under its credit lines of $46,925,000 bearing a weighted-average interest rate of 7.15%. 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 December 31, 2000, the receive and pay rates related to the interest rate swap were 7.75% and 6.52%, respectively. At December 31, 2000, the fair value of the interest rate swap agreement was approximately $119,000. Interest differentials to be paid or received because of the swap agreement are reflected as an adjustment to interest expense over the related debt period. The potential impact of market conditions on the fair value of the Company's indebtedness is not expected to be material. Given that such lines of credit bear interest at floating market interest rates, the fair value of amounts borrowed thereunder approximates carrying value. 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 17, 2000. (b) The matters voted upon were as follows: (i) The election of three directors in Class III to serve for three-year terms expiring in 2003, 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: Dr. James F. Gaertner For 5,107,344 Against/Withheld 40,649 Abstain -0- Broker Non-votes -0- Mr. Gene Stallings For 5,107,344 Against/Withheld 40,649 Abstain -0- Broker Non-votes -0- Mr. Roger R. Hemminghaus For 5,107,344 Against/Withheld 40,649 Abstain -0- Broker Non-votes -0- Directors whose terms continued after the annual meeting are as follows: Mr. Marvin J. Girouard Mr. J.S.B. Jenkins Mr. C. A. Rundell, Jr. Ms. Colombe M. Nicholas 15 16 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: Exhibit No. Description 10.40 Third Amendment to Revolving Credit and Term Loan Agreement between Tandy Brands Accessories, Inc. and NationsBank, N.A. dba Bank of America, N.A. Dated as of November 14, 2000 and Amendment thereto. 10.41 Second Amendment to the Revolving Credit Agreement between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, N.A., Dated as of December 18, 2000. (b) Reports on Form 8-K. The Company filed a Form 8-K on October 16, 2000 regarding the press release announcing its financial results for the first quarter of fiscal 2001. The Company filed a Form 8-K on January 18, 2001 regarding the press release announcing its financial results for the second quarter of fiscal 2001. 16 17 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: February 12, 2000 17 18 EXHIBIT INDEX
INCORPORATED BY REFERENCE (IF APPLICABLE) EXHIBIT ------------------------------------------ NUMBER DESCRIPTION FORM DATE FILE NO. ------- ----------- --------- ------------- ----------- (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 4.2 Form of Common Stock Certificate of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.3 Form of Preferred Share Purchase Rights Certificate Of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 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) Material Contracts 10.40 Third Amendment to N/A N/A N/A Revolving Credit and Term Loan Agreement between Tandy Brands Accessories, Inc. and NationsBank, N.A. dba Bank of America, N.A. Dated as of November 14, 2000 and Amendment thereto.** 10.41 Second Amendment to N/A N/A N/A the Revolving Credit Agreement between Tandy Brands Accessories, Inc. and Wells HSBC Trade Bank, N.A., Dated as of December 18, 2000.**
** Filed herewith. 18 EX-10.40 2 d84017ex10-40.txt 3RD AMEND. TO REVOLVING CREDIT/TERM LOAN AGREEMENT 1 EXHIBIT 10.40 THIRD AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT This Third Amendment To Revolving Credit and Term Loan Agreement (this "Third Amendment") is made by and between TANDY BRANDS ACCESSORIES, INC., a Delaware corporation ("Borrower"), and BANK OF AMERICA, N.A. (formerly NationsBank, N.A.), a national banking association ("Lender"). WHEREAS, the parties entered into that one certain Revolving Credit Loan Agreement dated November 17, 1998 (the Revolving Credit Loan Agreement dated November 17, 1998 and all amendments thereto and restated thereof are hereinafter referred to as the "Loan Agreement"); and WHEREAS, the parties entered into that one certain Amendment To Revolving Credit and Term Loan Agreement dated May 17, 1999 (the "First Amendment"); and WHEREAS, the parties entered into that one certain Amendment To Revolving Credit and Term Loan Agreement dated June 12, 2000 (the "Second Amendment"); and WHEREAS, the parties desire to amend the Loan Agreement in certain respects. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: 1. Section 7.9 of the Loan Agreement is amended to read as follows: 7.9 Fixed Charges Coverage. Borrower shall not permit the ratio of (a) EBITDA to (b) Fixed Charges, in each case for Borrower and its Subsidiaries and for the four (4) fiscal quarters ending on the date of determination, to be less than 1.5 to 1.0. 2. Except as amended above and by the First Amendment and the Second Amendment, the Loan Agreement is ratified and confirmed and shall remain in full force and effect. 3. This Third Amendment shall be binding upon and inure to the benefit of the parties and their successors and assigns. 2 4. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. Executed effective as of the 14th day of November, 2000. BORROWER: TANDY BRANDS ACCESSORIES, INC., a Delaware corporation, as Borrower By: /s/ STAN NINEMIRE ----------------------------------------- Stan Ninemire, Chief Financial Officer and Senior Vice President LENDER: BANK OF AMERICA, N.A., a national banking association, as Lender By: /s/ VINCENT A. LIBERIO ----------------------------------------- Vincent A. Liberio, Senior Vice President 2 EX-10.41 3 d84017ex10-41.txt 2ND AMEND. TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.41 December 18, 2000 Tandy Brands Accessories, Inc. 690 East Lamar Blvd. Arlington, Texas 76011 Ladies and Gentlemen: This Second Amendment to the Revolving Credit Agreement (the "Amendment") will serve to set forth the amended terms of the financing transaction by and between TANDY BRANDS ACCESSORIES, INC. ("Borrower"), and WELLS FARGO HSBC TRADE BANK, N.A. ("Lender"). WHEREAS, Borrower and Lender have entered into that certain Revolving Credit Agreement, dated April 30, 1999, as amended (the "Credit Agreement"); and WHEREAS, the Borrower and the Lender have agreed to make certain changes to the Credit Agreement subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINITIONS. All capitalized terms used but not otherwise defined in this Amendment shall have the meaning ascribed to them in the Credit Agreement. Unless otherwise specified, all section references herein refer to sections of the Credit Agreement. 2. AMENDMENTS. The Credit Agreement is hereby amended as follows: 2.1 AMENDMENT TO "APPLICABLE MARGIN". The definition of "Applicable Margin" is amended to read as follows:
"REVOLVING CREDIT COMMITMENT -------------------------------------------------------- Eurodollar Prime Rate Quoted Rate Borrowings Borrowings Borrowings ---------- ---------- ----------- .75% 0% .75%"
2 2.2 AMENDMENT TO SECTION 7.9. Present Section 7.9 of the Credit Agreement is deleted and replaced by the following "7.9 Fixed Charges Coverage. Borrower shall not permit the ratio of (a) EBITDA to (b) Fixed Charges, in each case for Borrower and its Subsidiaries and for the four (4) fiscal quarters ending on the date of the determination, to be less than 1.5 to 1.0." 3. CONDITIONS PRECEDENT. As a condition precedent to the effectiveness of this Amendment, Borrower agrees to provide the following documents to Lender: (a) Each of the Guarantors shall execute and deliver to Lender a confirmation of guarantee in form and substance satisfactory to Lender confirming each Guarantor's guarantee of Borrower's indebtedness under the Credit Agreement. 4. RATIFICATIONS, REPRESENTATIONS AND WARRANTIES. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. The Borrower and Lender agree that the Credit Agreement, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. The Borrower represents and warrants that as of the date hereof, there is no Event of Default or Potential Default under the Credit Agreement. 5. BENEFITS. This Amendment shall be binding upon and inure to the benefit of Lender and Borrower, and their respective successors and assigns; provided, however, that Borrower may not, without the prior written consent of Lender, assign any rights, powers, duties or obligations under this Amendment, the Credit Agreement or any of the other Loan Documents. 6. CONSTRUCTION. This Amendment has been executed and delivered in the State of Texas, shall be governed by and construed in accordance with the laws of the State of Texas, and shall be performable by the parties hereto in Dallas County, Texas. 2 3 7. INVALID PROVISIONS. If any provision of this Amendment is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Amendment shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance. 8. ENTIRE AGREEMENT. The Credit Agreement, as amended by this Amendment, contains the entire agreement among the parties regarding the subject matter hereof and supersedes all prior written and oral agreements and understandings among the parties hereto regarding same. 9. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement, as amended hereby, are hereby amended so that any reference in the Credit Agreement to the "Agreement" shall mean a reference to the Credit Agreement as amended hereby. 10. COUNTERPARTS. This Amendment may be separately executed in any number of counterparts, each of which shall be an original, but all of which, taken together, shall be deemed to constitute one and the same agreement. If the foregoing correctly sets forth our mutual agreement, please so acknowledge by signing and returning this Amendment to the undersigned. Very truly yours, WELLS FARGO HSBC TRADE BANK, N.A. By: /s/ DAN A. BYERS ------------------------------- Name: Dan A. Byers ----------------------------- Title: Vice President ----------------------------- Lender's Address: 1445 Ross Avenue Dallas, Texas 75202 3 4 ACCEPTED as of the date first written above. BORROWER: TANDY BRANDS ACCESSORIES, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Sr. Vice President ------------------------------- 4 5 CONFIRMATION OF GUARANTEE Reference is made to the Revolving Credit Agreement dated April 30, 1999 between WELLS FARGO HSBC TRADE BANK, N.A. ("Lender") and TANDY BRANDS ACCESSORIES, INC. ("Borrower"), as amended (the "Credit Agreement"). Each of the undersigned Guarantors hereby confirms that its respective Guaranty Agreements between each such Guarantor and Lender continues in full force and effect notwithstanding the Second Amendment to Revolving Credit Agreement dated as of December 18, 2000 between Lender and Borrower, which Second Amendment to Revolving Credit Agreement is hereby accepted and consented to by each Guarantor. In accordance herewith, the aforesaid Guaranty Agreements shall be deemed to cover and secure the Guaranteed Debt at any time due from Borrower to Lender pursuant to the Credit Agreement as the latter has been amended and supplemented by the Second Amendment to Credit Agreement. This Confirmation of Guarantee shall be governed by and construed in accordance with the laws of the State of Texas. TBAC GENERAL MANAGEMENT COMPANY By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- AMITY/ROLFS, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- TBAC CANTERBURY, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- TIGER ACCESSORIES, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- 5 6 ACCESSORY DESIGN GROUP, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- TBAC MANAGEMENT COMPANY, LTD. BY: TBAC General Management Company, its General Partner By: /s/ STAN NINEMIRE ------------------------------- Name: Stan Ninemire ----------------------------- Title: Vice President ---------------------------- TBAC-PRINCE GARDNER, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- TBAC INVESTMENTS, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- TBAC-SPIELBURG, INC. By: /s/ STAN NINEMIRE ----------------------------------- Name: Stan Ninemire --------------------------------- Title: Vice President -------------------------------- Date: December 18, 2000 6 -----END PRIVACY-ENHANCED MESSAGE-----