-----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, SAxkpsYKeiF1/Occ/h8mgM544IzsQyOM3yfm9N1CnTh0SwArpWkfHZTLtSjU1mUz wczCsggEMDAXY1TIKaoGrQ== 0000950134-01-508191.txt : 20020410 0000950134-01-508191.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950134-01-508191 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 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: 1934 Act SEC FILE NUMBER: 000-18927 FILM NUMBER: 1781356 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 d92086e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 ================================================================================ 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 September 30, 2001 Commission File Number 0-18927 TANDY BRANDS ACCESSORIES, INC. (Exact name of registrant as specified in its charter) Delaware 75-2349915 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 690 East Lamar Boulevard, Suite 200, Arlington, TX 76011 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (817)-548-0090 Former name, former address and former fiscal year, if changed since last report: Not Applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Class Number of shares outstanding at September 30, 2001 Common stock, $1 par value 5,882,926 ================================================================================ TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 +=============================================================================== 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 16 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 INDEX TO EXHIBITS 18
2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0-18927 FORM 10-Q ================================================================================ CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended September 30 ------------------------ 2001 2000 ---------- ---------- Net sales $ 54,106 $ 53,469 Cost of goods sold 35,073 35,288 ---------- ---------- Gross margin 19,033 18,181 Selling, general and administrative expenses 13,310 12,698 Depreciation and amortization 1,387 1,151 ---------- ---------- Total operating expenses 14,697 13,849 ---------- ---------- Operating income 4,336 4,332 Interest expense (778) (1,021) Royalty income and early termination of license agreement 9 17 ---------- ---------- Income before provision for income taxes 3,567 3,328 Provision for income taxes 1,385 1,293 ---------- ---------- Net income $ 2,182 $ 2,035 ========== ========== Earnings per common share $ 0.38 $ 0.36 ========== ========== Earnings per common share - assuming dilution $ 0.38 $ 0.36 ========== ========== Common shares outstanding 5,718 5,612 ========== ========== Common shares outstanding - assuming dilution 5,725 5,626 ========== ========== Cash dividends per common share None None
The accompanying notes are an integral part of these condensed financial statements. 3 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0-18927 FORM 10-Q ================================================================================ CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
September 30, June 30, 2001 2001 ------------- ---------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 935 $ 79 Accounts receivable, net 45,901 34,459 Inventories: Raw materials and work in process 4,886 5,077 Finished goods 56,893 57,258 Other current assets 3,995 3,829 ---------- ---------- Total current assets 112,610 100,702 ---------- ---------- Property and equipment, at cost 26,600 26,451 Accumulated depreciation (12,707) (11,963) ---------- ---------- Net property and equipment 13,893 14,488 ---------- ---------- Other assets: Goodwill, less amortization 12,911 13,215 Other assets, less amortization 8,817 8,579 ---------- ---------- Total other assets 21,728 21,794 ---------- ---------- $ 148,231 $ 136,984 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,124 $ 9,408 Accrued expenses 6,778 4,911 ---------- ---------- Total current liabilities 14,902 14,319 ---------- ---------- Other liabilities: Notes payable 54,956 47,400 Other noncurrent liabilities 2,785 1,130 ---------- ---------- Total other liabilities 57,741 48,530 ---------- ---------- Stockholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $1 par value, 10,000,000 shares authorized, 5,882,926 shares issued and outstanding 5,883 5,883 Additional paid-in capital 22,467 22,572 Cumulative other comprehensive income (1,746) (670) Retained earnings 50,182 48,000 Treasury stock, at cost (1,198) (1,650) ---------- ---------- Total stockholders' equity 75,588 74,135 ---------- ---------- $ 148,231 $ 136,984 ========== ==========
The accompanying notes are an integral part of these condensed financial statements. 4 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0-18927 FORM 10-Q ================================================================================ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Three Months Ended September 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 2,182 $ 2,035 Adjustments to reconcile net income to net cash used for operating activities: Depreciation 1,049 641 Amortization 383 346 Other (46) (151) Change in assets and liabilities: Accounts receivable (11,442) (13,326) Inventories 556 (4,654) Other assets (162) (819) Accounts payable (1,284) (1,688) Accrued expenses 1,866 2,013 ---------- ---------- Net cash used for operating activities (6,898) (15,603) ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (149) (495) ---------- ---------- Net cash used for investing activities (149) (495) ---------- ---------- Cash flows from financing activities: Sale of stock to stock purchase program 347 367 Purchase of treasury stock -- (996) Proceeds from borrowings 29,494 33,525 Payments under borrowings (21,938) (17,075) ---------- ---------- Net cash provided by financing activities 7,903 15,821 ---------- ---------- Net increase (decrease) in cash and cash equivalents 856 (277) Cash and cash equivalents at beginning of period 79 661 ---------- ---------- Cash and cash equivalents at end of period $ 935 $ 384 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 557 $ 729 Income taxes 11 --
The accompanying notes are an integral part of these condensed financial statements. 5 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 month period ended September 30, 2001, are not necessarily indicative of the results that may be expected for the year ended June 30, 2002. 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, 2001. Certain prior year amounts have been reclassified to conform to the fiscal 2002 presentation. NOTE 2 - IMPACT OF NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2003. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $625,000 ($0.11 per share) per year. During fiscal 2003, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of July 1, 2002, and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. In April 2001, the Emerging Issues Task Force ("EITF") issued a consensus EITF No. 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer." EITF No. 00-25 requires that consideration from a vendor to a reseller of the vendor's products is presumed to be a reduction of the selling prices of the vendor's products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income statement. The Company adopted the EITF in the first quarter of fiscal 2002 and the effects thereof were not material to the Company's consolidated financial position or statements of income, stockholders' equity and cash flows. 6 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 months ended September 30, 2001 and 2000 are as follows (in thousands):
Three Months Ended September 30, ------------------------- 2001 2000 ------- ------- Net income $ 2,182 $ 2,035 Foreign currency translation adjustments (61) (136) Cumulative effect of change in accounting principle - fair value of interest rate swap -- 308 Change in fair value of interest rate swap (1,015) -- ------- ------- Comprehensive income $ 1,106 $ 2,207 ======= =======
7 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 Ended September 30, ----------------------- 2001 2000 ---------- ---------- Numerator for basic and diluted earnings per share: Net income $ 2,182 $ 2,035 ========== ========== Denominator: Weighted average shares outstanding 5,705 5,599 Contingently issuable shares 13 13 ---------- ---------- Denominator for basic earnings per share - weighted average shares 5,718 5,612 Effect of dilutive securities: Employee stock options 7 12 Director stock options -- 2 ---------- ---------- Dilutive potential common shares 7 14 Denominator for diluted earnings per share - adjusted weighted - average shares 5,725 5,626 ========== ========== Basic earnings per share $ 0.38 $ 0.36 ========== ========== Diluted earnings per share $ 0.38 $ 0.36 ========== ==========
8 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, golf pro shops, sporting goods 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 2001 Annual Report. No intersegment revenue is recorded. Information regarding operations and assets by segment are as follows (in thousands):
Three Months Ended September 30, ------------------------ 2001 2000 ---------- ---------- Revenue from external customers: Men's accessories $ 27,143 $ 30,245 Women's accessories 26,963 23,224 ---------- ---------- $ 54,106 $ 53,469 ========== ========== Operating income (1): Men's accessories 2,266 3,628 Women's accessories 2,070 704 ---------- ---------- $ 4,336 $ 4,332 ========== ========== Interest expense (778) (1,021) Other income (2) 9 17 ---------- ---------- Income before income taxes $ 3,567 $ 3,328 ========== ========== Depreciation and amortization expense: Men's accessories $ 846 $ 671 Women's accessories 541 480 ---------- ---------- $ 1,387 $ 1,151 ========== ========== Capital expenditures: Men's accessories $ -- $ -- Women's accessories 141 218 Corporate 8 277 ---------- ---------- $ 149 $ 495 ========== ==========
(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 other income not specifically identifiable to a segment. 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - CREDIT FACILITY At September 30, 2001, the Company was in violation of the leverage ratio financial covenant of its $80,000,000 committed secured revolving credit facility (the "Credit Facility"). The Company's ratio for this covenant was 3.35 to 1.00, compared to a covenant requirement of not more than 3.125 to 1.00. The shortfall in earnings which caused this covenant violation was attributable in part to the impact of the bankruptcy of a customer during the fourth quarter of fiscal 2001, which resulted in the recognition of approximately $650,000 of additional bad debt expense in fiscal 2001. The Company had negotiated its covenants prior to the bankruptcy notice and as such the $650,000 will impact the earnings used in the calculation of covenants through the fourth quarter of fiscal 2002. The Company was in compliance with all other covenants related to the Company's credit facility. On November 5, 2001, the Company received a waiver from the bank group through December 31, 2001 related to the aforementioned violation. Based on internal projections, management anticipates compliance with all covenants related to the credit facility for the remainder of fiscal 2002. 10 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, suspenders and cold weather accessories. 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), WOOLRICH(R), JORDACHE(R), INDIAN MOTORCYCLE(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, drug stores, golf pro shops and sporting goods stores. The Company is deeply saddened by the unexpected terrorist attacks and tremendous loss our country endured on September 11, 2001. Given the uncertainty of the economic impact of the events of September 11, 2001 and our country's subsequent war on terrorism, we cannot predict at this time whether future orders will be adversely affected during fiscal 2002. RESULTS OF OPERATIONS Sales and gross margin data from the Company's segments for the three months ended fiscal 2002 compared to the same period last year were as follows (in thousands):
Three Months Ended September 30, ------------------------ 2001 2000 ---------- ---------- Net sales: Men's accessories $ 27,143 $ 30,245 Women's accessories 26,963 23,224 ---------- ---------- Total net sales $ 54,106 $ 53,469 ========== ========== Gross margin: Men's accessories $ 10,148 $ 11,376 Women's accessories 8,885 6,805 ---------- ---------- Total gross margin $ 19,033 $ 18,181 ========== ========== Gross margin as a percentage of sales: Men's accessories 37.4% 37.6% Women's accessories 33.0% 29.3% Total 35.2% 34.0%
11 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000 NET SALES For the three-month period ended September 30, 2001, net sales increased 1.2% to $54,106,000 as compared to net sales of $53,469,000 for the same period last year. Net sales of men's accessories decreased 10.3% for the three-month period ended September 30, 2001 as compared to the same period last year. The decrease in men's sales was attributable to lower than anticipated mass merchant and department store orders. This decrease was caused by retail customers reducing planned inventory levels in anticipation of lower future retail sales attributable to current economic pressures. However, the decrease in men's accessories sales was offset by a 16.1% increase in sales of women's accessories for the three-month period ended September 30, 2001 as compared to the same period last year. The increase was attributable to sales from the initial shipments of the Company's new line of DOCKERS(R) accessories and increased women's mass merchant accessory sales. GROSS MARGINS Gross margins increased for the three-month period ended September 30, 2001, $852,000, or 4.7% as compared to the same period for the prior year. As a percentage of sales, gross margins increased 1.2% for the three-month period ended September 30, 2001 as compared to the same period last year. The overall increase was due to margin improvements in the Company's women's mass merchant product sales as well as higher margin DOCKERS(R) accessories sales. OPERATING EXPENSES Selling, general and administrative expenses as a percentage of net sales for the three months ended September 30, 2001 increased 0.9% as compared to the same period of the prior year. The increase resulted from higher wages and royalty expense. Depreciation and amortization expenses increased 20.5% to $1,387,000 for the three months ended September 30, 2001, compared to $1,151,000 in the same period of the prior year. The increase is attributable to capital expenditures related to the leasehold improvements and equipment related to the Company's distribution facility in Dallas, Texas, for women's accessories as well as additional hardware and software applications. Interest expense for the three-month period ended September 30, 2001 decreased $243,000 as compared to the same period for the prior year. The decrease is primarily related to lower interest rates as well as lower debt levels as compared to same period of the prior year. The effective tax rate for the three months ended September 30, 2001 was 38.8% which is consistent with the same period in the prior year. Net income for the three-month period ended September 30, 2001 increased 7.2% to $2,182,000 or $.38 per diluted share, compared to net income of $2,035,000 or $.36 per diluted share, for the same three months last year. The increase in net income was primarily due to the higher margin sales mix of women's accessories. 12 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Generally, the Company's primary sources of liquidity are cash flows from operations and the Company's line of credit. The Company has an $80,000,000 committed secured revolving credit facility (the "Credit Facility"), which can be used for seasonal borrowings and letters of credit. The credit facility is secured by essentially all of the assets of the Company and its subsidiaries and requires the maintenance of certain financial covenants which if not met, could adversely impact the liquidity of the Company. See Note 6 for a discussion of the Company's credit facility and the violation of a debt covenant occuring in the first quarter of fiscal 2002. The Company's borrowings under its credit lines were $54,956,000 and $57,525,000 as of September 30, 2001 and 2000, respectively. For the three months ended September 30, 2001, the Company's operating activities used cash of $6,898,000 compared to $15,603,000 for the same period last year. The decrease was attributable to the timing of cash receipts from accounts receivable and inventory purchases. Capital expenditures were $149,000 for the three months ended September 30, 2000. The decrease of $346,000 from the same prior year period is due to the timing of capital investments during fiscal 2002. Management anticipates that the Company's level of capital investment for fiscal 2002 will approximate the prior year. Capital commitments for fiscal 2002 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 and reduction of debt. The Company's existing credit agreement currently contains covenants that restrict the payment of dividends. See Note 2 for a discussion of the impact of recently issued accounting standards. 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 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 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 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 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 a interest rate swap agreement to lock in a fixed interest rate for a portion of these borrowings. At September 30, 2001 the Company had borrowings under its credit facility of $54,956,000 bearing a weighted-average interest rate of 5.69%. The Company entered into a three-year interest rate swap agreement converting $30,000,000 of outstanding indebtedness from a variable to a fixed interest rate. The average receive rate is based on a 90 day LIBOR rate. 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. At September 30, 2001, the receive and pay rates related to the interest rate swap were 3.79% and 5.60%, respectively. The interest rate swap agreement represents a valid cash flow hedge under Statement of Financial Accounting Standards No. 133. As such, during fiscal 2002, changes in the fair value of the interest rate swap were recognized to other comprehensive income with the fair value at September 30, 2001, approximating ($1,656,000). 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. 15 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ 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 16, 2001. (b) The matters voted upon were as follows: (i) The election of two directors in Class II to serve for three-year terms expiring at 2004 annual meeting of stock holders, or until their successors are elected and qualified. The number of votes cast for and against the election of each nominee, as well as the number of abstentions and broker non-votes with respect to the election of each nominee were as follows: Mr. C. A. Rundell, Jr. ----------------------- For 4,860,208 Against/Withheld 316,292 Abstain -0- Broker Non-votes -0- Ms. Colombe M. Nicholas ------------------------- For 4,862,181 Against/Withheld 314,319 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 Dr. James F. Gaertner Mr. Gene Stallings Mr. Roger R. Hemminghaus (ii) The approval of the Amendment to the Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan (the "Plan") which would increase the number of shares of common stock which may be issued on exercise of stock options granted under the Plan. The number of votes cast for and against the approval of the Plan, as well as the number of abstentions and broker non-votes with respect to the approval of the Plan were as follows: For 2,738,186 Against/Withheld 607,316 Abstain 16,796 Broker Non-votes 1,814,202
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: None. (b) Reports on Form 8-K. The Company filed a Form 8-K on October 17, 2001 regarding the press release announcing its financial results for the first quarter of fiscal 2002. 16 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TANDY BRANDS ACCESSORIES, INC. (Registrant) /s/ J.S.B. Jenkins ---------------------------------------------------- J.S.B. Jenkins President and Chief Executive Officer /s/ Stanley T. Ninemire ---------------------------------------------------- Stanley T. Ninemire Senior Vice President, Chief Financial Officer and Treasurer Date: November 13, 2001 17 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (If applicable) ------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit - ------------------------------ --------- --------- --------- --------- (4) Instruments defining the rights of security holders, including indentures 4.1 Certificate of Designations, Powers, Preferences and Rights of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.1 4.2 Form of Common Stock Certificate of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.2 4.3 Form of Preferred Share Purchase Rights Certificate Of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.3 4.4 Rights Agreement dated November 7, 1990, Between Tandy Brands Accessories, Inc. And First National Bank of Boston S-1 11/02/90 33-37588 10.5 (10) Material Contracts *10.37 Limited Consent and Waiver dated November 5, 2001 between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, N.A. as agent under the Agreement. N/A N/A N/A N/A
* Filed herewith. 18 EX-10.37 3 d92086ex10-37.txt LIMITED CONSENT AND WAIVER EXHIBIT 10.37 [TRADE BANK LETTERHEAD] LIMITED CONSENT AND WAIVER RECITALS: Reference is made to that certain Credit Agreement dated as of June 27, 2001 (the "Agreement") among Tandy Brands Accessories, Inc. ("Borrower"), Wells Fargo HSBC Trade Bank, N.A. ("Agent"), and the lenders specified therein ("Lenders"). Terms used and not defined herein shall have the meanings given them in the Agreement. Borrower has advised Agent that as of September 30, 2001 it has failed to satisfy the Leverage Ratio requirement set forth at Section 10.14 of the Agreement. Failure to perform this covenant resulted in an Event of Default under the Agreement. Borrower has requested that Agent, acting on behalf of the Lenders waive the foregoing described Event of Default. LIMITED CONSENT AND WAIVER: Subject to the conditions and limitations set forth hereinbelow, Agent hereby: 1. Waives the foregoing Event of Default under the Agreement caused by the failure to perform the covenant set forth at Section 10.14 of the Agreement as of September 30, 2001. Provided, so long as any Advances remain outstanding: A. Agent is hereby authorized to demand specific performance of this Limited Consent and Waiver (the "Limited Consent and Waiver") at any time when Borrower shall have failed to comply with any of the provisions of this Limited Consent and Waiver. Borrower hereby irrevocably waives any defense based upon the adequacy of a remedy at law which might be asserted as a bar to such remedy of specific performance and waives any requirement of the posting of any bond which might otherwise be required before such remedy of specific performance is granted. B. No action or inaction of Agent or the Lenders or any other Person, and no change of law or circumstances, shall release or diminish the obligations, liabilities, agreements or duties hereunder of Borrower, affect the Agreement in any way, or afford any Person any recourse against Agent or the Lenders. 1 LIMITATIONS AND CONDITIONS: Borrower hereby represents and warrants to the Agent and the Lenders that (i) immediately after giving effect to this Limited Consent and Waiver, there shall exist no Default or Event of Default, and (ii) immediately after giving effect to this Limited Consent and Waiver, all representations and warranties contained herein, in the Agreement or otherwise made in writing by Borrower in connection herewith or therewith shall be true and correct in all material respects with the same force and effect as if those representations and warranties had been made on and as of the date hereof, except to the extent such representations and warranties by their terms speak as of an earlier date. Except as expressly waived or agreed herein, all covenants, obligations and agreements of Borrower contained in the Agreement shall remain in full force and effect in accordance with their terms. Without limitation of the foregoing, the consents and agreements set forth herein are limited precisely to the extent set forth herein and shall not be deemed to (a) be a consent or agreement to, or waiver or modification of, any other term or condition of the Agreement or any of the documents referred to therein, or (b) except as expressly set forth herein, prejudice any right or rights which the Agent or the Lenders may now have or may have in the future under or in connection with the Agreement or any of the documents referred to therein. Except as expressly modified hereby, the terms and provisions of the Agreement and any other documents or instruments executed in connection with any of the foregoing, are and shall remain in full force and effect, and the same are hereby ratified and confirmed by Borrower in all respects. Borrower agrees to reimburse and save Agent harmless from and against liabilities for the payment of all out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under, this Limited Consent and Waiver, including, without limitation, the reasonable fees and expenses of legal counsel to Agent which may be payable in respect of, or in respect of any modification of, this Limited Consent and Waiver. This Limited Consent and Waiver, and the rights and obligations of the parties hereunder, shall be construed in accordance with and be governed by the laws of the State of Texas. This Limited Consent and Waiver, and the documents referred to herein, represent the entire understanding of the parties hereto regarding the subject matter 2 hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof. This Limited Consent and Waiver is a "Loan Document" as defined and described in the Agreement, and all of the terms and provisions of the Agreement relating to Loan Documents shall apply hereto. This Limited Consent and Waiver may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same agreement. IN WITNESS WHEREOF, the undersigned parties have executed this Limited Consent and Waiver as of the 5th day of November, 2001. TANDY BRANDS ACCESSORIES, INC. By: /s/ STAN NINEMIRE ------------------------------------- Name: Stan Ninemire Title: Senior Vice President & CFO WELLS FARGO HSBC TRADE BANK, N.A. as Agent under the Agreement. By: /s/ STEVE CHRISTOPHER ------------------------------------- Name: Steve Christopher Title: Relationship Manager 3 CONFIRMATION OF GUARANTY Reference is made to the Credit Agreement dated as of June 27, 2001 (the "Agreement") among Tandy Brands Accessories, Inc. ("Borrower"), Wells Fargo HSBC Trade Bank, N.A. ("Agent"), and the lenders specified therein ("Lenders"). The undersigned Guarantors hereby confirm that their guaranty under the Subsidiary Guaranty dated as of June 27, 2001 for the benefit of the Agent, the Lenders, and Wells Fargo, N.A., continues in full force and effect notwithstanding the Limited Consent and Waiver dated as of November 5, 2001, which Limited Consent and Waiver is hereby accepted and consented to by each Guarantor. In accordance herewith, the aforesaid guaranty shall be deemed to cover and secure the Obligations at any time due from Borrower to Lenders pursuant to the Agreement as the latter has been modified by the Limited Consent and Waiver. This Confirmation of guaranty shall be governed by and construed in accordance with the laws of the State of Texas. Dated this ____ day of November, 2001. ACCESSORY DESIGN GROUP, INC. By: /s/ STAN NINEMIRE -------------------------------------- Name: Stan Ninemire Title: Vice President AMITY/ROLFS, INC. By: /s/ STAN NINEMIRE -------------------------------------- Name: Stan Ninemire Title: Vice President TANDY BRANDS ACCESSORIES HANDBAGS, INC. By: /s/ STAN NINEMIRE -------------------------------------- Name: Stan Ninemire Title: Vice President H.A. SHELDON CANADA, LTD. By: /s/ STAN NINEMIRE --------------------------------- Name: Stan Ninemire Title: Vice President TBAC INVESTMENTS, INC. By: /s/ STAN NINEMIRE --------------------------------- Name: Stan Ninemire Title: Vice President TBAC GENERAL MANAGEMENT COMPANY By: /s/ STAN NINEMIRE --------------------------------- Name: Stan Ninemire Title: Vice President TBAC MANAGEMENT COMPANY L.P. 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 STAGG INDUSTRIES, INC. By: /s/ STAN NINEMIRE --------------------------------- Name: Stan Ninemire Title: Vice President TBAC - TOREL, INC. By: /s/ STAN NINEMIRE --------------------------------- Name: Stan Ninemire Title: Vice President TBAC INVESTMENT TRUST, INC. By: /s/ STAN NINEMIRE ----------------------- Name: Stan Ninemire Title: Vice President ACCEPTED as of the date first written above. BORROWER TANDY BRANDS ACCESSORIES, INC. By: /s/ STAN NINEMIRE ------------------------------ Name: Stan Ninemire Title: Senior Vice President & CFO -----END PRIVACY-ENHANCED MESSAGE-----