-----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, Ju+u6V5rN6kiwrHFb/aq975TrUDzc3SeWbb8Ynp1ehxtumgV9uHS8SFn8R+b4tWN c5yZXX3qan/3wt3Kg8mopg== 0000950134-02-001222.txt : 20020414 0000950134-02-001222.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950134-02-001222 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 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: 02543266 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 d94251e10-q.txt FORM 10-Q FOR QUARTER ENDED DECEMBER 31, 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 December 31, 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 December 31, 2001 Common stock, $1 par value 5,882,926
================================================================================ TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Form 10-Q Quarter Ended December 31, 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 Six Months Ended Ended December 31 December 31 ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net sales $ 60,607 $ 56,223 $ 114,713 $ 109,692 Cost of goods sold 39,391 36,567 74,464 71,855 ------------ ------------ ------------ ------------ Gross margin 21,216 19,656 40,249 37,837 Selling, general and administrative expenses 13,803 12,805 27,113 25,504 Depreciation and amortization 1,335 1,232 2,722 2,382 ------------ ------------ ------------ ------------ Total operating expenses 15,138 14,037 29,835 27,886 ------------ ------------ ------------ ------------ Operating income 6,078 5,619 10,414 9,951 Interest expense (857) (1,000) (1,635) (2,021) Royalty income and early termination of license agreement 3 17 12 34 ------------ ------------ ------------ ------------ Income before provision for income taxes 5,224 4,636 8,791 7,964 Provision for income taxes 2,033 1,788 3,418 3,081 ------------ ------------ ------------ ------------ Net income $ 3,191 $ 2,848 $ 5,373 $ 4,883 ============ ============ ============ ============ Earnings per common share $ 0.55 $ 0.51 $ 0.94 $ 0.87 ============ ============ ============ ============ Earnings per common share - assuming dilution $ 0.55 $ 0.51 $ 0.93 $ 0.87 ============ ============ ============ ============ Common shares outstanding 5,763 5,578 5,740 5,595 ============ ============ ============ ============ Common shares outstanding - assuming dilution 5,794 5,582 5,760 5,604 ============ ============ ============ ============ Cash dividends per common share None None 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)
December 31, June 30, 2001 2001 ------------ ------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 1,154 $ 79 Accounts receivable, net 39,512 34,459 Inventories: Raw materials and work in process 4,622 5,077 Finished goods 54,169 57,258 Other current assets 4,194 3,829 ------------ ------------ Total current assets 103,651 100,702 ------------ ------------ Property and equipment, at cost 27,004 26,451 Accumulated depreciation (13,379) (11,963) ------------ ------------ Net property and equipment 13,625 14,488 ------------ ------------ Other assets: Goodwill, less amortization 12,648 13,215 Other assets, less amortization 8,712 8,579 ------------ ------------ Total other assets 21,360 21,794 ------------ ------------ $ 138,636 $ 136,984 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,740 $ 9,408 Accrued expenses 8,216 4,911 ------------ ------------ Total current liabilities 14,956 14,319 ------------ ------------ Other liabilities: Notes payable 42,122 47,400 Other noncurrent liabilities 2,661 1,130 ------------ ------------ Total other liabilities 44,783 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 as of December 31, 2001 and June 30, 2001. 5,883 5,883 Additional paid-in capital 22,443 22,572 Cumulative other comprehensive income (1,903) (670) Retained earnings 53,373 48,000 Treasury stock, at cost (899) (1,650) ------------ ------------ Total stockholders' equity 78,897 74,135 ------------ ------------ $ 138,636 $ 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)
Six Months Ended December 31, ----------------------- 2001 2000 -------- --------- Cash flows from operating activities: Net income $ 5,373 $ 4,883 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 2,008 1,351 Amortization 767 617 Other (322) (88) Change in assets and liabilities: Accounts receivable (5,053) (9,061) Inventories 3,544 (3,375) Other assets (684) (1,054) Accounts payable (2,668) 782 Accrued expenses 3,320 1,974 -------- --------- Net cash provided by (used for) operating activities 6,285 (3,971) -------- --------- Cash flows from investing activities: Purchases of property and equipment (553) (1,469) -------- --------- Net cash used for investing activities (553) (1,469) -------- --------- Cash flows from financing activities: Exercise of employee stock options 0 23 Sale of stock to stock purchase program 621 658 Purchase of treasury stock 0 (1,400) Proceeds from borrowings 43,908 50,600 Payments under borrowings (49,186) (44,750) -------- --------- Net cash provided by (used for) financing activities (4,657) 5,131 -------- --------- Net increase (decrease) in cash and cash equivalents 1,075 (309) Cash and cash equivalents at beginning of period 79 661 -------- --------- Cash and cash equivalents at end of period $ 1,154 $ 352 ======== ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,428 $ 1,622 Income taxes 1,811 2,170
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 and six month periods ended December 31, 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 stipulates 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 and six months ended December 31, 2001 and 2000 are as follows (in thousands):
Three Months Six Months Ended Ended December 31, December 31, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net income $ 3,191 $ 2,848 $ 5,373 $ 4,883 Foreign currency translation adjustments (246) 31 (307) (105) Cumulative effect of change in accounting principle - fair value of interest rate swap -- -- -- 308 Fair value of interest rate swap 89 (235) (926) (235) ------------ ------------ ------------ ------------ Comprehensive income $ 3,034 $ 2,644 $ 4,140 $ 4,851 ============ ============ ============ ============
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 Six Months Ended Ended December 31, December 31, --------------------------- --------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Numerator for basic and diluted earnings per share: Net income $ 3,191 $ 2,848 $ 5,373 $ 4,883 ============ ============ ============ ============ Denominator: Weighted average shares outstanding 5,750 5,564 5,727 5,582 Contingently issuable shares 13 14 13 13 ------------ ------------ ------------ ------------ Denominator for basic earnings per share - weighted average shares 5,763 5,578 5,740 5,595 Effect of dilutive securities: Employee stock options 29 4 18 8 Director stock options 2 -- 2 1 ------------ ------------ ------------ ------------ Dilutive potential common shares 31 4 20 9 Denominator for diluted earnings per share - adjusted weighted - average shares 5,794 5,582 5,760 5,604 ============ ============ ============ ============ Basic earnings per share $ 0.55 $ 0.51 $ 0.94 $ 0.87 ============ ============ ============ ============ Diluted earnings per share $ 0.55 $ 0.51 $ 0.93 $ 0.87 ============ ============ ============ ============
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 Six Months Ended December 31, December 31, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenue from external customers: Men's accessories $ 30,143 $ 29,577 $ 57,285 $ 59,821 Women's accessories 30,464 26,646 57,428 49,871 ------------ ------------ ------------ ------------ $ 60,607 $ 56,223 $ 114,713 $ 109,692 ============ ============ ============ ============ Operating income (1): Men's accessories 3,329 4,190 5,595 7,888 Women's accessories 2,749 1,429 4,819 2,063 ------------ ------------ ------------ ------------ $ 6,078 $ 5,619 $ 10,414 $ 9,951 ============ ============ ============ ============ Interest expense (857) (1,000) (1,635) (2,021) Other income (2) 3 17 12 34 ------------ ------------ ------------ ------------ Income before income taxes $ 5,224 $ 4,636 $ 8,791 $ 7,964 ============ ============ ============ ============ Depreciation and amortization expense: Men's accessories $ 822 $ 736 $ 1,667 $ 1,391 Women's accessories 513 496 1,055 991 ------------ ------------ ------------ ------------ $ 1,335 $ 1,232 $ 2,722 $ 2,382 ============ ============ ============ ============ Capital expenditures: Men's accessories $ -- $ 148 $ -- $ 148 Women's accessories 310 282 451 500 Corporate 94 544 102 821 ------------ ------------ ------------ ------------ $ 404 $ 974 $ 553 $ 1,469 ============ ============ ============ ============
(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 December 31, 2001, the Company was in compliance with all covenants related to the credit facility. Based on internal projections, management anticipates compliance with all covenants related to the credit facility for the remainder of fiscal 2002. 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 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. 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), 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. Given the economic impact of the terrorist attacks 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 and six months ended fiscal 2002 compared to the same period last year were as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net sales: Men's accessories $ 30,143 $ 29,577 $ 57,285 $ 59,821 Women's accessories 30,464 26,646 57,428 49,871 ------------ ------------ ------------ ------------ Total net sales $ 60,607 $ 56,223 $ 114,713 $ 109,692 ============ ============ ============ ============ Gross margin: Men's accessories $ 11,555 $ 11,578 $ 21,703 $ 22,954 Women's accessories 9,661 8,078 18,546 14,883 ------------ ------------ ------------ ------------ Total gross margin $ 21,216 $ 19,656 $ 40,249 $ 37,837 ============ ============ ============ ============ Gross margin as a percentage of sales: Men's accessories 38.3% 39.1% 37.9% 38.4% Women's accessories 31.7% 30.3% 32.3% 29.8% Total 35.0% 35.0% 35.1% 34.5%
11 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, 2001 Compared to the Three and Six Months Ended December 31, 2000 Net Sales For the three-month period ended December 31, 2001, net sales increased 7.8% to $60,607,000 as compared to net sales of $56,223,000 for the same period last year. Net sales of men's accessories increased 1.9% for the three-month period ended December 31, 2001 as compared to the same period last year. The increase in men's sales was due to the Company's acquisition of Stagg Industries, Inc. which contributed $1,881,000 in net sales during the second quarter of fiscal 2002. The increase was partially offset by decreased core men's accessories sales due to lower than anticipated mass merchant and department store orders. Net sales of women's accessories increased 14.3% for the three-month period ended December 31, 2001 as compared to the same period last year. The increase was attributable to higher sales volume of women's mass merchant accessory sales. For the six month period ended December 31, 2001, net sales increased 4.6% to $114,713,000 as compared to net sales of $109,692,000 for the same period last year. The sales increases were attributable to higher sales volume in women's accessories experienced during the first six months of fiscal 2002. Gross Margins Gross margins increased for the three and six months ended December 31, 2001, $1,560,000 and $2,412,000, or 7.9% and 6.4%, respectively, as compared to the same periods for the prior year. As a percentage of sales, gross margins for the three months ended December 31, 2001, were consistent at 35.0% as compared to the same period in the last year. For the six-month period ended December 31, 2001, the gross margin percentage increased 0.6% 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. Operating Expenses Selling, general and administrative expenses as a percentage of net sales for the three months ended December 31, 2001, was consistent with the same period in the prior year. For the six-month period ended December 31, 2001, selling, general and administrative expenses as a percentage of net sales increased 0.6% as compared to the same period of the prior year. The increase resulted from higher wages and royalty expense. Depreciation and amortization expenses increased $103,000 and $340,000 for the three and six months ended December 31, 2001, respectively, as compared to the same periods in 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 and six month periods ended December 31, 2001 decreased $143,000 and $386,000, respectively, as compared to the same periods in the prior year. The decrease is primarily related to lower interest rates as well as lower debt levels as compared to the same period of the prior year. The effective tax rates for the three and six months ended December 31, 2001 was 38.9%, which was consistent with the same periods in the prior year. Net income for the three-month period ended December 31, 2001 increased 12.0% to $3,191,000, or $0.55 per diluted share, compared to net income of $2,848,000, or $0.51 per diluted share, for the same period in the prior year. Net income for the six months ended December 31, 2001 increased 10.0% to $5,373,000, or $0.93 per diluted share, compared to net income of $4,883,000, or $0.87 per diluted share, for the same period in the prior 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. The Company's borrowings under its credit lines were $42,122,000 and $46,925,000 as of December 31, 2001 and 2000, respectively. As of December 31, 2001, the Company had credit availability under its credit facilities of approximately $30,189,000. For the six months ended December 31, 2001, the Company's operating activities provided cash of $6,285,000 compared to a use of cash of $3,971,000 for the same period last year. The improvement in cash flows from operating activities was attributable to the timing of cash receipts from accounts receivable and inventory purchases. Capital expenditures were $553,000 for the six months ended December 31, 2001. The decrease of $916,000 from the same prior year period is due to planned decreased capital expenditures and 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 December 31, 2001 the Company had borrowings under its credit facility of $42,122,000 bearing a weighted-average interest rate of 4.41%. 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 December 31, 2001, the receive and pay rates related to the interest rate swap were 2.60% 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 December 31, 2001, approximating ($1,516,000). 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: February 14, 2002 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
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