<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15 (d)
of the Securities Exchange Act of 1934
_________________________
For the Period Ended March 31, 1996 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Class Number of shares outstanding at March 31, 1996
- -------------------------- ----------------------------------------------
Common stock, $1 par value 5,359,760
<PAGE>
TANDY BRANDS ACCESSORIES, INC.
Form 10-Q
Quarter Ended March 31, 1996
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item Page No.
1. Financial Statements 3 - 6
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 9
PART II -- OTHER INFORMATION
Item
4. Submission of Matters to a Vote of Security Holders 10
6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
INDEX TO EXHIBITS AND EXHIBITS 12 - 14
2
<PAGE>
Tandy Brands Accessories, Inc.
File Number 0-18927
Form 10-Q
Condensed Consolidated Statements of Income
(Amounts in thousands, Except Per Share Amounts)
(Unaudited)
Three Months Nine Months
Ended Ended
March 31, 1996 March 31, 1996
---------------- ----------------
1996 1995 1996 1995
------- ------- -------- -------
Gross sales, less discounts, returns
and allowances $19,180 $17,247 $66,289 $64,407
Royalty, interest and other income 9 32 104 151
------ ------ ------ ------
Total revenues 19,189 17,279 66,393 64,558
Costs and expenses:
Cost of goods sold 11,915 10,432 40,914 38,660
Selling, general and administrative 5,783 5,886 19,582 18,011
Depreciation and amortization 535 429 1,601 1,144
Interest expense 297 260 1,020 643
------ ------ ------ ------
Total costs and expenses 18,530 17,007 63,117 58,458
Income from continuing operations
before provision for income taxes 659 272 3,726 6,100
------ ------ ------ ------
Provision for income taxes (230) (95) (1,160) (2,173)
Income from continuing operations 429 177 2,116 3,927
------ ------ ------ ------
Discontinued Operations:
Pre-tax loss from operations of
discontinued operation (794) (1,341)
Pre-tax loss from liquidation of
discontinued operation (3,685) (3,685)
Income tax benefit applicable to
discontinued operation 0 1,590 0 1,784
------ ------ ------ ------
Loss from discontinued operation 0 (2,889) 0 (3,242)
------ ------ ------ ------
Net Income $429 $(2,712) $2,116 $685
====== ====== ====== =======
Average common shares and common share
equivalents 5,381 5,277 5,348 5,265
===== ===== ===== =====
Earnings per average common share and
common share equivalent:
Income from continuing operations $0.08 $0.03 $0.40 $0.75
Loss from discontinued operation 0.00 (0.55) 0.00 (0.62)
----- ----- ----- -----
Net income $0.08 $(0.52) $0.40 $0.13
===== ===== ===== =====
Cash dividends per common share None None None None
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
Tandy Brands Accessories, Inc.
File Number 0-18927
Form 10-Q
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, June 30,
1996 1995
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,018 $ 1,488
Accounts receivable, net 13,560 13,280
Inventories:
Raw materials and work in process 5,909 6,598
Finished goods 20,503 23,612
Other current assets 2,645 2,307
------ ------
Total current assets 43,635 47,285
------ ------
Property and equipment, at cost 9,272 8,796
Accumulated depreciation (3,991) (3,293)
------ ------
Net property and equipment 5,281 5,503
------ ------
Other assets:
Goodwill, less amortization 10,054 10,591
Other assets, less amortization 3,516 3,936
------ ------
Total other assets 13,570 14,527
------ ------
TOTAL ASSETS $ 62,486 $ 67,315
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,550 $ 6,827
Accounts payable 2,909 4,272
Accrued expenses 2,726 3,117
------ ------
Total current liabilities 9,185 14,216
------ ------
Other liabilities:
Notes payable 14,000 16,650
Other noncurrent liabilities 624 610
------ ------
Total other liabilities 14,624 17,260
------ ------
Stockholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, non-issued
Common stock, $1 par value, 10,000,000
shares authorized, 5,379,760 shares and
5,257,458 shares issued and outstanding
as of March 31, 1996, and June 30,
1995, respectively 5,360 5,257
Additional paid-in capital 17,876 17,280
Retained Earnings 15,441 13,302
------ ------
Total stockholders' equity 38,677 35,839
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,486 $ 67,315
====== ======
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
Tandy Brands Accessories, Inc.
File Number 0-18927
Form 10-Q
Condensed Consolidated Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
--------------------------
1996 1995
---------- ----------
Cash Flows from operating activities:
Net income $ 2,116 $ 685
Adjustments to reconcile net income to net
cash provided by (used for) continuing
activities:
Loss from discontinued operation 3,242
Depreciation 794 683
Amortization 923 616
Other 37 (9)
Change in assets and liabilities, net of
effects from acquisitions and liquidation of
discontinued operation:
Accounts Receivable (280) (1,782)
Inventories 3,798 (4,987)
Other assets (335) 157
Accounts payable (1,363) (1,618)
Accrued expenses (361) (2,872)
Net operating activities of discontinued
operation 0 338
------- -------
Net cash used for operating activities 5,329 (5,547)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (572) (1,316)
Payment for purchase of H.A. Sheldon's assets
and liabilities, net of cash acquired and
notes retired 0 (3,961)
------- -------
Net cash used for investing activities (572) (5,277)
------- -------
Cash flows from financing activities:
Exercise of employee stock options, net of
purchase of treasury stock 20 2
Sale of stock to stock purchase program 680 778
Proceeds from borrowings 21,195 49,070
Payments under borrowings (27,122) (39,350)
------- -------
Net cash provided by financing activities (5,227) 10,500
------- -------
Net decrease in cash and cash equivalents (470) (324)
Cash and cash equivalents at beginning of period 1,488 669
------- -------
Cash and cash equivalents at end of period $ 1,018 $ 345
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 1,017 $ 553
Income Taxes 643 1,527
Noncash activities:
None.
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
TANDY BRANDS ACCESSORIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Accounting Principles.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
March 31, 1996, are not necessarily indicative of the results that may be
expected for the year ended June 30, 1996. 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, 1995.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC.
GENERAL
Tandy Brands Accessories, Inc. (the "Company") manufactures and markets men's,
women's and children's accessories. The Company's business is conducted
primarily in the United States. Historically, the Company's sales and operating
results are generally consistent throughout the fiscal year, but there is
normally a seasonal increase during the second quarter. Sales and operating
results for fiscal 1996, as compared to the same prior year period, will be
impacted by the acquisition during fiscal 1995 of the Canterbury Belts, Ltd. and
H.A. Sheldon operations.
On May 1, 1995, the Company acquired Canterbury Belts, Ltd., a manufacturer and
marketer of leather and fabric belts and suspenders for men and belts for women
and children. The purchase price of approximately $5,000,000 was provided by
drawings on existing bank credit lines. Canterbury, with sales of approximately
$7,700,000 for the year ended December 31, 1994, sells its products primarily to
better specialty stores. The acquisition of Canterbury Belts has allowed the
Company to add a new distribution channel where it can market better quality,
higher margin products.
On August 30, 1994, the Company purchased substantially all the assets and
assumed substantially all the liabilities of H.A. Sheldon Inc. for a purchase
price of approximately $2,550,000. H.A. Sheldon Inc. is a manufacturer and
marketer of men's belts, wallets and suspenders, located in Toronto, Canada.
H.A. Sheldon, Inc. is a primary supplier to Canadian department, chain and mass
merchant retail stores.
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.
RESULTS OF OPERATIONS
Three and Nine Months Ended March 31, 1996 Compared to the Three and Nine Months
Ended March 31, 1995.
At this time last year, Tandy Brands Accessories, Inc. (the "Company") commented
that the slow retail market, which had negatively impacted its third quarter
results, might very well continue to affect the Company's operating results in
the fourth quarter, although hopefully, to a lesser degree. While that
prediction was correct, it did not envision the degree to which that stagnation
would continue to persist in today's retail market. However, in spite of the
continued softness in the retail market, the Company reported increases in sales
for the quarter and nine months ended March 31, 1996.
Net sales of $19,180,000 and $66,289,000 for the three and nine month periods
ended March 31, 1996, were up when compared to net sales of $17,247,000 and
$64,407,000 for the same time periods in the prior year. The Company was also
pleased to announce that net income from continuing operations for the quarter
ended March 31, 1996, of $429,000, was up substantially when compared to the
$177,000 of net income from continuing operations reported for the same time
period in the prior year. This increase in net income from continuing
operations for the third fiscal quarter occurred in spite of a decrease in gross
profit margin. The margin decline occurred due to pricing concessions from the
Company in order to generate new business or, in some cases, to maintain the
Company's existing business in an extremely competitive market. However, the
decline in gross profit margin from 39.5% for the third quarter ended March 31,
1995, to 37.9% for the current quarter, was more than offset by a larger
percentage decrease in selling, general, and administrative expenses.
7
<PAGE>
Net income from continuing operations for the nine months ended March 31, 1996,
was $2,116,000, down from $3,927,000 reported for the same period in the prior
year. Normally about 76% of the Company's sales and net income are earned
during the first nine months of the Company's fiscal year
ending June 30th, which is about what the Company expects to happen in fiscal
1996. Fiscal 1995, however, defied the traditional seasonality of the Company's
business from a net income perspective. While 76.9% of fiscal 1995's sales did
occur during the nine months ended March 31, 1995, 93.6% of its annual net
income from continuing operations was earned on those sales. As a result,
fiscal 1995's fourth quarter only generated 6.4% of its net income from
continuing operations. This decline in profitability was due to a softening
retail market and a corresponding deterioration in the Company's gross profit
margin. This condition has continued to prevail throughout fiscal 1996 to date
and is one of the major factors contributing to the Company's marginal
performance this year. The other contributing factor to the decline in net
income from continuing operations for the nine months ended March 31, 1996, was
an increase in selling, general, and administrative expenses as a percent of
sales. These expenses were initially incurred in anticipation of a mild
recovery in the retail market. When that recovery failed to materialize, the
Company responded by initiating a series of cost cutting measures. This is
obvious from the steep decline in selling, general, and administrative expenses,
as a percent of sales, that occurred during the quarter ended March 31, 1996.
The Company recently announced that it has the exclusive rights to design,
manufacture and market women's small leather goods and handbags for Jones New
York. Jones New York apparel is currently sold at department and specialty
stores throughout the United States. On the heals of that announcement, the
Company also reported that it has the exclusive rights to design, manufacture
and market a complete collection of Greg Norman belts and personal leather
goods. These agreements illustrate the ongoing development of the Company's
strategy to expand its base of better retail distribution channels.
Depreciation and amortization expense increased during fiscal 1996 due primarily
to the acquisition of Canterbury Belts, Ltd. and H.A. Sheldon, Inc. Interest
expense was also up substantially and due primarily to these acquisitions.
The effective tax rate for all periods presented has remained steady at
approximately 35%.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from operations and the
Company's lines of credit. The Company has two unsecured bank credit lines
aggregating $45,000,000 which can be used for seasonal borrowings and letters of
credit. The Company also has an unsecured line of credit of $750,000 with a
Canadian bank for seasonal borrowings, letter of credit and foreign exchange
forward contract requirements of H.A., Sheldon. As of March 31, 1996, the
Company had borrowings under its lines of credit of $17,550,000 down from
$23,477,000 at June 30, 1995. Since June 30, 1995, the Company's debt to total
capital ratio has fallen from 39% to 31%. The Company expects to reduce its
debt to total capital ratio from 31% to less than 30% by no later that June 30,
1996.
For the nine months ended March 31, 1996, the Company's operating activities
provided cash of $5,329,000. The increase in cash available from operations,
other than net income, is primarily due to a $3,798,000 decrease in inventory,
offset in part by a $1,724,000 decrease in accounts payable and accrued
expenses.
Capital expenditures were only $572,000 for the nine months ended March 31,
1996, compared to $1,316,000 for the same period of the prior year. These
expenditures are down in response to the slow retail market and the fact that
there are no significant capital expenditures projects under way.
The Company believes that its cash flow from operations and borrowing available
under bank lines of credit are sufficient to fund its operations.
9
<PAGE>
TANDY BRANDS ACCESSORIES, INC.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) No matters were submitted to the Security Holders for a vote during the
quarter ended March 31, 1996.
ITEM 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
The exhibits filed as a part of this report are listed below.
Exhibit No. Description
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
10
<PAGE>
TANDY BRANDS ACCESSORIES, INC.
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/s J.S.B. Jenkins
-------------------------------------
J.S.B. Jenkins
President and Chief Executive Officer
s/s R. Bruce Cole
-------------------------------------
R. Bruce Cole
Vice President and Treasurer
(Principal Financial Officer)
Date: May 14, 1996
11
<PAGE>
TANDY BRANDS ACCESSORIES, INC.
EXHIBIT INDEX
Sequen-
tially Incorporated by Reference
Numbered (If applicable)
Exhibit Number and Description Page Form Date File No. Exhibit
- ------------------------------ -------- ---- --------- -------- -------
(4) Instruments defining the
rights of security
holders, including
indentures
4.1 Certificate of N/A S-1 11/02/90 33-37588 4.1
Designations,
Powers, Preferences
and Rights of
Series A Junior
Participating
Cumulative
Preferred Stock of
Tandy Brands
Accessories, Inc.
4.2 Form of Common N/A S-1 11/02/90 33-37588 4.2
Stock Certificate
of Tandy Brands
Accessories, Inc.
4.3 Form of Preferred N/A S-1 11/02/90 33-37588 4.3
Share Purchase
Rights Certificate
of Tandy Brands
Accessories, Inc.
4.4 Rights agreement N/A S-1 11/02/90 33-37588 10.5
dated November 7,
1990, between Tandy
Brands Accessories,
Inc. and First
National Bank of
Boston
(11) Statement re: Computation
of per share earnings
11.1 Earnings per share 13 N/A N/A N/A N/A
statement
(27) Financial Statement Schedule 14 N/A N/A N/A N/A
12
TANDY BRANDS ACCESSORIES, INC.
Exhibit 11. Statement Regarding Computation of Per Share Earnings.
Earnings per Share - Earnings per share is determined by dividing net income by
the average number of common shares outstanding plus common stock equivalents.
Common stock equivalents consist of shares issuable under outstanding stock
options reduced by shares assumed to be purchased from the proceeds of such
options. Earnings per share, as presented, is both primary and fully diluted.
Three Months Nine Months
Ended Ended
March 31, March 31,
------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Weighted average common
shares outstanding 5,346,000 5,207,000 5,313,000 5,186,000
Common share equivalents 35,000 70,000 35,000 79,000
--------- --------- --------- ---------
Average common shares and
common share equivalents 5,381,000 5,277,000 5,348,000 5,265,000
========= ========= ========= =========
13
<PAGE>
TANDY BRANDS ACCESSORIES, INC.
Exhibit 27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,018
<SECURITIES> 0
<RECEIVABLES> 14,189
<ALLOWANCES> 629
<INVENTORY> 26,412
<CURRENT-ASSETS> 2,645
<PP&E> 9,272
<DEPRECIATION> 3,991
<TOTAL-ASSETS> 62,486
<CURRENT-LIABILITIES> 9,185
<BONDS> 0
0
0
<COMMON> 5,360
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 62,486
<SALES> 66,289
<TOTAL-REVENUES> 66,393
<CGS> 40,914
<TOTAL-COSTS> 63,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,020
<INCOME-PRETAX> 3,726
<INCOME-TAX> 1,160
<INCOME-CONTINUING> 2,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,116
<EPS-PRIMARY> .400
<EPS-DILUTED> .400
</TABLE>
