-----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, QP86L0MWHXcvizMJvpnNnP2iTQ1POZxMKkkWECw3Auz/0UB6uRBFq0YPYASCp8m+ bV0+xh1NTIYxdTm9y3WyBA== 0000950134-99-009863.txt : 19991115 0000950134-99-009863.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950134-99-009863 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748056 BUSINESS ADDRESS: STREET 1: 690 E LAMAR BLVD STE 200 CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8175480090 MAIL ADDRESS: STREET 1: 690 E LAMAR BLVD CITY: ARLINGTON STATE: TX ZIP: 76011 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1999 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 September 30, 1999 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, 1999 Common stock, $1 par value 5,796,028 ================================================================================ 2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Form 10-Q Quarter Ended September 30, 1999 TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION
Item Page No. -------- 1. Financial Statements 3 - 9 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13 3. Qualitative and Quantitative Disclosures About Market Risk 14 PART II -- OTHER INFORMATION Item 4. Submission of Matter to a Vote of Security Holders 14 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 INDEX TO EXHIBITS 17
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 Ended September 30 ---------------------- 1999 1998 -------- -------- Gross sales, less discounts, returns and allowances $ 53,256 $ 44,281 Cost of goods sold 34,372 27,801 -------- -------- Gross margin 18,884 16,480 Selling, general and administrative expenses 12,667 11,113 Depreciation and amortization 833 747 -------- -------- Total operating expenses 13,500 11,860 -------- -------- Operating income 5,384 4,620 Interest expense (893) (745) Royalty, interest and other income 31 20 -------- -------- Income before provision for income taxes 4,522 3,895 Provision for income taxes 1,754 1,511 -------- -------- Net income $ 2,768 $ 2,384 ======== ======== Earnings per common share $ 0.48 $ 0.42 ======== ======== Earnings per common share - assuming dilution $ 0.47 $ 0.41 ======== ======== Common shares outstanding 5,797 5,670 ======== ======== Common shares outstanding - assuming dilution 5,873 5,768 ======== ======== Cash dividends per common share 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)
September 30, June 30, 1999 1999 ------------- ------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 681 $ 180 Accounts receivable, net 48,714 33,514 Inventories: Raw materials and work in process 5,651 6,879 Finished goods 55,029 48,680 Other current assets 2,132 1,823 ------------- ------------ Total current assets 112,207 91,076 ------------- ------------ Property and equipment, at cost 17,529 17,187 Accumulated depreciation (6,808) (6,722) ------------- ------------ Net property and equipment 10,721 10,465 ------------- ------------ Other assets: Goodwill, less amortization 11,836 10,373 Other assets, less amortization 8,087 8,224 ------------- ------------ Total other assets 19,923 18,597 ------------- ------------ TOTAL ASSETS $ 142,851 $ 120,138 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 15,175 $ 0 Accounts payable 4,579 5,835 Accrued expenses 7,354 4,394 ------------- ------------ Total current liabilities 27,108 10,229 ------------- ------------ Other liabilities: Notes payable 50,000 47,425 Other noncurrent liabilities 285 292 ------------- ------------ Total other liabilities 50,285 47,717 ------------- ------------ Stockholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $1 par value, 10,000,000 shares authorized, 5,796,028 shares and 5,761,952 shares issued and outstanding as of September 30, 1999, and June 30, 1999, respectively 5,796 5,762 Additional paid-in capital 22,342 21,900 Cumulative other comprehensive income (359) (381) Retained earnings 37,679 34,911 ------------- ------------ Total stockholders' equity 65,458 62,192 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 142,851 $ 120,138 ============= ============
The accompanying notes are an integral part of these condensed financial statements. 4 5 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES File Number 0-18927 Form 10-Q Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Three Months Ended September 30, ---------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net income $ 2,768 $ 2,384 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 465 417 Amortization 411 365 Other 6 (148) Change in assets and liabilities: Accounts receivable (14,369) (4,302) Inventories (4,145) (7,809) Other assets (246) (303) Accounts payable (1,256) (1,073) Accrued expenses 2,733 (758) -------- -------- Net cash used for operating activities (13,633) (11,227) -------- -------- Cash flows from investing activities: Purchases of property and equipment (531) (633) Purchase of Frank Spielburg, LLC (3,561) 0 -------- -------- Net cash used for investing activities (4,092) (633) -------- -------- Cash flows from financing activities: Exercise of employee stock options 37 151 Sale of stock to stock purchase program 439 530 Proceeds from borrowings 31,545 22,792 Payments under borrowings (13,795) (11,842) -------- -------- Net cash provided by financing activities 18,226 11,631 -------- -------- Net increase (decrease) in cash and cash equivalents 501 (229) Cash and cash equivalents at beginning of period 180 283 -------- -------- Cash and cash equivalents at end of period $ 681 $ 54 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 416 $ 495 Income taxes 45 1 Noncash activities: None
The accompanying notes are an integral part of these condensed financial statements. 5 6 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Statements (Unaudited) Note 1 - Accounting Principles. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 1999, are not necessarily indicative of the results that may be expected for the year ended June 30, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Tandy Brands Accessories, Inc. and Subsidiaries Annual Report on Form 10-K for the year ended June 30, 1999. Note 2 - Impact of New Accounting Standards. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed for or Obtained for Internal Use." As required, the SOP was adopted during the first quarter of fiscal 2000 and had no material impact on the Company's consolidated financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting guidelines for derivatives and requires an establishment to record all derivatives as assets or liabilities on the balance sheet at fair value. Additionally this statement establishes accounting treatment for three types of hedges; hedges of changes in the fair value of assets, liabilities or firm commitments; hedges of the variable cash flows of forecasted transactions; and hedges of foreign currency exposures of net investments in foreign operations. Any derivative that qualifies as a hedge, depending on the nature of the hedge, will either be offset through earnings against the change in fair value of the hedged assets, liabilities or firm commitments or recognized in other comprehensive income until the hedged item is recognized in earnings. This SFAS is effective for the Company beginning in fiscal 2001. The Company is analyzing the implementation requirements and does not anticipate that the adoption of this statement will have a material impact on the Company's consolidated financial statements. Note 3 - Comprehensive Income. The components of comprehensive income, net of related tax, for the three months ended September 30, 1999 and 1998 are as follows (in thousands):
September 30 --------------------------- 1999 1998 ------------ ----------- Net income $ 2,768 $ 2,384 Foreign currency translation adjustments 22 (188) ------------ ----------- Comprehensive income $ 2,790 $ 2,196 ============ ===========
6 7 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Statements (Unaudited) Note 4 - Earnings Per Share. The following sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
Three Months Ended September 30 ---------------------------- 1999 1998 ------------ ------------ Numerator for basic and diluted earnings per share: Net income $ 2,768 $ 2,384 ============ ============ Denominator: Weighted average shares outstanding 5,780 5,650 Contingently issuable shares 17 20 ------------ ------------ Denominator for basic earnings per share - weighted average shares 5,797 5,670 Effect of dilutive securities: Employee stock options 65 85 Director stock options 11 13 ------------ ------------ Dilutive potential common shares 76 98 Denominator for diluted earnings per share - adjusted weighted - average shares 5,873 5,768 ============ ============ Basic earnings per share $ 0.48 $ 0.42 ============ ============ Diluted earnings per share $ 0.47 $ 0.41 ============ ============
7 8 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Statements (Unaudited) Note 5 - Disclosures about Segments of an Enterprise and Related Information. The Company sells its products to a variety of retail outlets, including national chain stores, discount stores, major department stores, specialty stores, catalog retailers and the retail exchange operations of the United States military. The Company and its corresponding customer relationships are organized along Men's and Women's product lines. As a result, the Company has two reportable segments: (1) Men's Accessories consisting of belts, wallets, suspenders, neckwear and other small leather goods and (2) Women's Accessories consisting of belts, wallets, handbags, socks, scarves, hats and hair accessories. General corporate expenses are allocated to each segment based on the respective segment's asset base. Depreciation and amortization expense related to assets recorded on the Company's corporate accounting records are allocated to each segment as described above. Management measures profit or loss on each segment based upon income or loss before taxes utilizing the accounting policies consistent in all material respects with those described in Note 1 of the Company's 1999 Annual Report. No intersegment revenue is recorded. Information regarding operations and assets by segment are as follows (in thousands):
Three Months Ended September 30, ---------------------- 1999 1998 -------- -------- Revenue from external customers: Men's accessories $ 28,084 $ 25,143 Women's accessories 25,172 19,138 -------- -------- $ 53,256 $ 44,281 ======== ======== Operating income (loss) (1): Men's accessories 3,155 2,817 Women's accessories 2,229 1,803 -------- -------- $ 5,384 $ 4,620 ======== ======== Interest expense 893 745 Other (income) expense (2) (31) (20) -------- -------- Income before income taxes $ 4,522 $ 3,895 ======== ======== Depreciation and amortization expense: Men's accessories $ 553 $ 541 Women's accessories 280 206 -------- -------- $ 833 $ 747 ======== ======== Capital expenditures: Men's accessories $ 30 $ 199 Women's accessories 13 100 Corporate 488 334 -------- -------- $ 531 $ 633 ======== ========
(1) Operating income consists of net sales less cost of sales, specifically identifiable selling, general and administrative expenses. (2) Other (income) expense includes royalty income on corporate tradenames and other (income) and expense not specifically identifiable to a segment. 8 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Statements (Unaudited) Note 6 - Credit Arrangements On November 1, 1999, the Company amended its $45,000,000 unsecured line of credit with a bank expanding availability thereunder to $50,000,000. Of this amount, $25,000,000 is a committed facility which is comprised of a $15,000,000 term note and a $10,000,000 committed revolving credit facility both of which require the maintenance of certain financial covenants and the payment of a commitment fee of 1/4% on the unused balance. The $15,000,000 term note which expires on November 17, 2003, bears interest at LIBOR plus 1%. The $10,000,000 committed revolving credit facility which expires on May 18, 2001, bears interest at various rates with short-term durations. Principal payments on the term note and committed revolving credit facility are due on the expiration date. The $20,000,000 uncommitted facility thereunder was increased to $25,000,000. Each facility may be used for borrowings or letters of credit. The amendment increased the Company's total aggregate domestic bank credit lines to $90,000,000. Note 7 - Acquisitions On July 16, 1999, the Company purchased certain assets of Frank Spielberg Sales LLC ("Spielberg"), a handbag designer and marketer based in St. Louis, Missouri, for approximately $3.6 million. The cash purchase price was provided by drawing on existing bank lines. Spielberg supplies proprietary design, marketing and sourcing expertise for handbags under department store private labels and direct sales to retailers. Spielberg will continue to operate from its St. Louis, New York City and Hong Kong offices. The acquisition was accounted for under the purchase method of accounting and the resultant goodwill of approximately $1,675,000 is amortized over 20 years. The pro-forma effects of this acquisition are not material. Note 8 - Subsequent Events On October 20, 1999, the Company announced that its Board of Directors has 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. 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. On November 2, 1999, the Company announced that its Board of Directors has renewed the Company's stockholder rights plan designed to protect its stockholders from unsolicited, coercive takeover proposals. A new amended and restated plan was adopted in the normal course of updating and extending the predecessor stockholder rights plan, which was scheduled to expire on December 31, 2000, and not in response to any acquisition proposal. The expiration date of the rights plan has been extended to October 19, 2009. The amended plan has been altered to reflect prevailing stockholder rights plan terms, such as lowering the share ownership level which triggers the exercise of the rights and eliminating the continuing director provision. The amended plan provides for an increase in the exercise price of the rights under the plan from $36.00 to $70.00. In connection with the announcement, the Company filed the amended and restated plan on Form 8-K with the Securities and Exchange Commission on November 2, 1999. On November 9, 1999, the Company and JONES APPAREL GROUP announced that they have mutually agreed to amend their existing licensing agreement. Under the amended agreement Tandy Brands Accessories will continue to design and market men's belts, personal leather goods and suspenders as well as women's small leather goods under various JONES NEW YORK(R) brands, but will no longer design and market women's handbags under any JONES NEW YORK(R) brands. As compensation for the early termination of women's handbag license rights, Jones Apparel Group will pay the Company $1.5 million in cash, of which a portion will be used to wind down functions related to the license arrangements. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES GENERAL Tandy Brands Accessories, Inc. ("the Company") is a leading designer, manufacturer and marketer of branded men's, women's and children's accessories, including belts and small leather goods such as wallets. The Company's product line also includes handbags, socks, scarves, hats, hair accessories, suspenders and neckwear. Tandy Brands' merchandise is marketed under a broad portfolio of nationally recognized licensed and proprietary brand names, including Jones New York(R), Florsheim(R), Rolfs(R), Haggar(R), Bugle Boy(R), Canterbury(R), Prince Gardner(R), Princess Gardner(R), Amity(R), Accessory Design Group(R) and Tiger(R), as well as private brands for major retail customers. The Company sells its products through all major retail distribution channels throughout the United States and Canada, including mass merchants, national chain stores, department stores, men's and women's specialty stores, golf pro shops and catalogs. On October 20, 1999, the Company announced the successful launch of a branded e-commerce web site that is available now at http://stores.yahoo.com/rolfs. Capturing strong consumer demand for this premier brand, the site will feature a full line of personal leather goods, belts, and other accessories in an easy to navigate and shop environment. The site was developed in coordination with Yahoo! Inc. Yahoo! Inc. is a global Internet media company, and represents the first test of a direct-to-consumer presence for the Company. On October 20, 1999, the Company also announced that the Board of Directors elected Colombe M. Nicholas, to the Board. Ms. Nicholas replaces Robert E. Runice, who is retiring from the Board; the Board size will remain at seven members. Ms. Nicholas' business experience spans more than 25 years, including her most recent post as President and Chief Executive Officer of Anne Klein Company. Prior to her tenure with Anne Klein, Ms. Nicholas was President and Chief Operating Officer of Giorgio Armani Fashion Corp., a subsidiary of G.F.T., and President and Chief Executive Officer of Christian Dior. Ms. Nicholas also serves on the Board of Directors of Ashford.com, a Internet retailer of luxury and premium products. She holds a J.D. from the University of Chicago College of Law, a B.A. from the University of Dayton, and was awarded an Honorary Doctorate in business from Bryant College of Rhode Island for her accomplishments as a business leader. See Note 8 for a discussion of certain subsequent events. 10 11 RESULTS OF OPERATIONS Sales and gross margin data from the Company's segments for three months ended fiscal 2000 compared to the same period last year were as follows (in thousands):
Three Months Ended September 30, -------------------- 1999 1998 ------- ------- Net sales: Men's accessories $28,084 $25,143 Women's accessories 25,172 19,138 ------- ------- Total net sales $53,256 $44,281 ======= ======= Gross margin: Men's accessories $10,732 $10,035 Women's accessories 8,152 6,445 ------- ------- Total gross margin $18,884 $16,480 ======= ======= Gross margin as a percentage of sales: Men's accessories 38.2% 39.9% Women's accessories 32.4% 33.7% Total 35.5% 37.2%
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998 NET SALES For the three month period ended September 30, 1999, net sales increased 20.3% to $53,256,000 as compared to net sales of $44,281,000 for the same period last year. The sales from the acquisition of Spielberg accounted for 50% of the net sales increase with the remaining increase attributable to the Company's existing core product lines. Net sales of men's and women's accessories increased 11.7% and 31.5%, respectively for the three month period ended September 30, 1999 as compared to the same period last year. The sales increases were attributable to higher sales volume in men's small leather goods and handbag sales sold to various mass merchants. GROSS MARGINS Gross margins for the three month period ended September 30, 1999 increased $2,404,000, or 14.6% as compared to the same period for the prior year. However, as a percentage of sales, men's and women's gross margins decreased 1.7% and 1.3%, respectively for the three month period ended September 30, 1999 as compared to the same period last year. The decrease in both segments is the result of the higher mass merchant sales as compared to the same quarter in the prior year. OPERATING EXPENSES Selling, general and administrative expenses as a percentage of net sales for the three months ended September 30, 1999 decreased 1.3% as compared to the same period of the prior year. A portion of the decrease resulted from a larger mix of mass merchant product sales, which, on a percentage of sales basis, incur lower variable selling expenses than department store product sales as well as volume efficiencies from increased sales. 11 12 Depreciation and amortization expenses increased 11.5% to $833,000 for the three months ended September 30, 1999, compared to $747,000 in the same period of the prior year. The increase is attributable to capital expenditures related to the Company's management information and distribution software systems completed during fiscal 1999 and the amortization of goodwill recorded in connection with the Spielberg acquisition. Interest expense for the three-month period ended September 30, 1999 increased $148,000 as compared to the same period for the prior year. The increase is primarily related to higher debt levels as a result of higher sales levels and inventory requirements. The effective tax rate for the three months ended September 30, 1999 was 38.8% which is consistent with the same period in the prior year. Net income for the three-month period ended September 30, 1999 increased 16.1% to $2,768,000 or $.47 per diluted share, compared to net income of $2,384,000 or $.41 per diluted share, for the same three months last year. The increase in net income was primarily due to the Company's 20.3% increase in net sales. 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 $65,175,000 and $53,550,000 as of September 30, 1999 and 1998, respectively. The increase in borrowings under these lines of credit is consistent with the Company's normal seasonality. See Note 6 for a discussion of certain amendments to these credit lines. For the three months ended September 30, 1999, the Company's operating activities used cash of $13,633,000 compared to $11,227,000 for the same period last year. The increase was attributable to timing of cash receipt collections related to sales during the three months ended September 30, 1999. Capital expenditures were $531,000 for the three months ended September 30, 1999. The decrease of $102,000 over the same prior year period is due to the timing of capital investments during fiscal 2000. Management anticipates that the Company's level of capital investment for fiscal 2000 will approximate the prior year. Capital commitments for fiscal 2000 include leasehold improvements for a new distribution facility in Dallas, Texas, for women's accessories as well as additional hardware and software applications. 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 8 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. 12 13 YEAR 2000 COMPLIANCE Many existing computer programs utilized globally use only two digits to identify a year in the date field. These programs, if not corrected, could fail or create erroneous results by or at the year 2000. This year 2000 issue is believed to affect virtually all companies and organizations, including the Company. The Company has undertaken a program to address its exposure to year 2000 issues. The Company has tested its program modifications and believes that its implementation plan will be successful. Although there can be no assurance with respect thereto, the Company does not expect that the year 2000 issues (including the cost of the Company's compliance program as currently estimated) will have a material adverse effect on the Company's financial position or results of operations. The Company's year 2000 compliance plan requires the query of its significant suppliers, subcontractors and customers that do not share information systems with the Company ("external third parties"). This process has been substantially completed. To date, the Company is unaware of any external third party with a year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external third parties will be year 2000 ready. The inability of external third parties to complete their year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external third parties is not determinable. In connection with its assessment of external third party readiness and operating equipment, the Company plans to evaluate the necessity of contingency plans based on the level of uncertainty regarding external third party compliance. In the event its external third parties do not expect to be year 2000 compliant, the Company's contingency plans may include replacing such third parties or performing the particular services provided by such parties itself. 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. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of financial condition and results of operations and other sections of this Form 10-Q contain forward looking statements that are based on current expectations, estimates and projections about the industry in which the Company operates, management's beliefs and assumptions made by management. In addition, other written or oral statements which constitute forward-looking statements may be made by or on behalf of the Company. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 13 14 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ITEM 3. Qualitative and Quantitative Disclosures About Market Risk The Company is subject to interest rate risk on its long term debt. The Company manages its exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition the Company has hedged its exposure to changes in interest rates on a portion of its variable debt by entering into a interest rate swap agreement to lock in a fixed interest rate for a portion of these borrowings. At September 30, 1999 the Company had borrowings under its credit lines of $65,175,000 bearing a weighted-average interest rate of 6.22%. 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 September 30, 1999, the receive and pay rates related to the interest rate swap were 6% and 6.52%, respectively. The potential impact of market conditions on the fair value of the Company's indebtedness is not expected to be material. PART II - OTHER INFORMATION ITEM 4. Submission of Matter to a Vote of Security Holders. (a) The annual meeting of stockholders was held on October 19, 1999. (b) The matters voted upon were as follows: (i) The election of two directors in Class III to serve for three-year terms expiring in 2002, 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. J.S.B. Jenkins For 5,148,239 Against/Withheld 16,173 Abstain -0- Broker Non-votes -0- Mr. Marvin J. Girouard For 5,086,676 Against/Withheld 77,736 Abstain -0- Broker Non-votes -0-
Directors whose terms continued after the annual meeting are as follows: Dr. James F. Gaertner Mr. C. A. Rundell, Jr. Ms. Maxine K. Clark Mr. Gene Stallings Mr. Robert E. Runice retired upon conclusion of the annual meeting. ii) The approval of the amendment to the Tandy Brands Accessories, Inc. Nonqualified Formula Stock Option Plan for Non-Employee Directors. 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: For 3,621,805 Against/Withheld 233,867 Abstain 20,311 Broker Non-votes 1,288,429
iii) The approval of the amendment to the Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan. 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: For 3,069,688 Against/Withheld 793,979 Abstain 12,316 Broker Non-votes 1,288,429
14 15 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ITEM 6. Exhibits and Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 1999. However, the Company filed a report on Form 8-K subsequent to the quarter ended September 30, 1999 as listed below. The exhibits filed as a part of this report are listed below. (a) The following documents are filed as part of this report:
Exhibit No. Description 10.34 Promissory Note between Tandy Brands Accessories, Inc. and Bank of America, N.A. dated November 1, 1999. 27.1 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed a Form 8-K on November 2, 1999 regarding the Amended and Restated Rights Agreement dated October 19, 1999, between the Registrant and Bank Boston, N.A. , as rights agent, including Form of Certificate of Designation for the Preferred Stock, Form of Rights Certificate and the Summary of Rights to purchase Preferred Stock. 15 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 12, 1999 16 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 10.34 Promissory Note between Tandy Brands Accessories, Inc. and Bank of America, N.A. dated November 1, 1999. N/A N/A N/A N/A (27) Financial Data Schedule 27.1 Financial Data Schedule N/A N/A N/A N/A
17 EX-10.34 2 PROMISSORY NOTE 1 EXHIBIT 10.34 [BANK OF AMERICA LETTERHEAD] November 1, 1999 Tandy Brands Accessories, Inc. Arlington, Texas Re: Uncommitted Line of Credit Gentlemen: Bank of America, N.A. ("Bank of America") is pleased to provide an uncommitted $25,000,000 Money Market Line to Tandy Brands Accessories, Inc. ("TBA") upon the following terms and conditions: Money Market Line: An uncommitted $25,000,000 Money Market Line (the "Line") which shall be on an "as available" basis. Bank of America shall have no obligation to make any advance under the Line. TBA may also request under the Line that Bank of America (a) issue standby letters of credit and documentary letters of credit ("Letters of Credit") and (b) create banker's acceptances ("Acceptances"). The aggregate amount of (y) all undrawn amounts, and all amounts drawn and not reimbursed under any Letters of Credit, and (z) all outstanding Acceptances, shall be reserved under the Line and shall not be available for advances thereunder. Minimum Advance: $100,000, or any integral multiple of $25,000 in excess of such amount. Terms of Advances: TBA may request an advance under the Line not later than 11:30 a.m. (i) on the business day such advance is requested to be made if the maturity date of such advance is for no more than 29 days, or (ii) at least 2 business days prior to the business day such advance is requested to be made if the maturity date of such advance is for more than 29 days. The amount, interest rate (which shall be 2 Tandy Brands Accessories, Inc. November 1, 1999 Page 2 computed on the basis of actual days elapsed over a 360 day year) and maturity date of each advance (which may not be more than 90 days after the date of such advance) will be agreed upon by Bank of America and TBA on or before such advance is made (failing which such advance will not be made) and such agreement shall be promptly confirmed in writing from Bank of America to TBA, which confirmation shall be conclusive in the absence of manifest error. Availability Period: Advances may be requested from the date of acceptance of this letter by TBA to the date either Bank of America or TBA, in its sole discretion, terminates the Line in writing. In the event Bank of America elects to terminate the Line, Bank of America may, in its sole discretion, demand that any outstanding advances be repaid, with accrued interest, on the effective date of termination. Promissory Note: Advances will be evidenced by a master revolving promissory note (the "Note") in the form of Exhibit A attached hereto. The terms of each advance will be recorded by Bank of America on the grid attached to the Note, but the inaccuracy, or the failure of Bank of America to make any such recordation shall not affect the obligations of TBA under the Note. Payments Prior to Maturity: If TBA elects or is required (other than upon demand by Bank of America made at a time that no default otherwise exists) to repay all or any part of any advance prior to its agreed upon maturity, TBA shall, at the request of Bank of America, pay to Bank of America such amount as Bank of America determines is necessary to compensate Bank of America for any breakage costs. Default: Advances under the Line are payable on demand, but if no demand is made, on the maturity date of the particular advance. A default shall be deemed to exist under the 3 Tandy Brands Accessories, Inc. November 1, 1999 Page 3 Note and Bank of America shall be entitled to accelerate the indebtedness evidenced by the Note and exercise its other available remedies in the event TBA fails to repay any advance, or accrued interest thereon, on demand or when due or upon the occurrence of a default or event of default, at maturity or permitting acceleration, under any agreement for money borrowed or for the deferred purchase price of property under which TBA is liable in an amount of $1,000,000 or more. In addition, the Line will be automatically terminated and the indebtedness evidenced by the Note will be automatically accelerated upon the insolvency of TBA or the commencement by or against (if not dismissed within 60 days) TBA of any bankruptcy, insolvency, moratorium or other debtor relief proceeding. Additional Requirements: TBA shall provide Bank of America the following information. 1. Copy of the audited consolidated FYE financial statement of Borrower as soon as available or within one hundred twenty (120) days after the close of each fiscal year. 2. Copy of the consolidated quarterly financial statements of Borrower as soon as available or within forty-five (45) days after the close of each fiscal quarter. 3. With each financial statement, a copy of TBA's compliance certificate required under its financial agreements with Wells Fargo HSBA Trade Bank, N.A. and Bank of America. Notification: TBA shall notify Bank of America in writing within five (5) business days regarding any modifications, amendments, waivers, etc. to its existing credit agreement with Wells Fargo HSBC Trade Bank, N.A. Governing Law: Texas 4 Tandy Brands Accessories, Inc. November 1, 1999 Page 4 THIS WRITTEN AGREEMENT, TOGETHER WITH THE NOTE, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. Very truly yours, BANK OF AMERICA, N.A. /s/ VINCE LIBERIO By: Vince Liberio Title: Senior Vice President Accepted and Agreed To: TANDY BRANDS ACCESSORIES, INC. By: /s/ STANLEY T. NINEMIRE -------------------------------- Title: CFO ----------------------------- NAME: STANLEY T. NINEMIRE 5 Exhibit "A" NOTE $25,000,000 Fort Worth, Texas November 1, 1999 For value received, TANDY BRANDS ACCESSORIES, INC., a Delaware Corporation (the "Borrower"), promises to pay to the order of Bank of America, N.A. (the "Bank") the unpaid principal amount of each advance made by the Bank to the Borrower pursuant to the Letter Agreement referred to below ON DEMAND or, if not theretofore demanded, on the maturity date therefor determined in accordance with the Letter Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such advance ON DEMAND or, if not theretofore demanded, on such maturity date and at the rate determined in accordance with the Letter Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of the Bank, 500 West Seventh Street, Fort Worth, Texas 76102-4700. All advances made by the Bank, the respective interest rates applicable thereto and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof, provided that the inaccuracy of, or the failure of the Bank to make, any such recordation shall not affect the obligations of the Borrower hereunder. This note is the Note referred to in the Letter Agreement dated as of November 1, 1999 between the Borrower and the Bank (as the same may be amended from time to time, the "Letter Agreement"). Reference is made to the Letter Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. TANDY BRANDS ACCESSORIES, INC. By: /s/ STANLEY T. NINEMIRE ------------------------------------- Title: CFO ---------------------------------- Name: STANLEY T. NINEMIRE ----------------------------------- EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS ACCESSORIES, INC.'S SEPTEMBER 30, 1999, FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILINGS. DOLLARS ARE IN THOUSANDS. 1,000 3-MOS JUN-30-2000 SEP-30-2000 681 0 50,445 1,731 60,680 112,207 17,529 6,808 142,851 27,108 50,000 0 0 5,796 59,662 142,851 53,256 53,256 34,372 34,372 833 0 893 4,522 1,754 2,768 0 0 0 2,768 .48 .47
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