<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15 (d)
of the Securities Exchange Act of 1934
--------------------
For the Period Ended December 31, 1997 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, 1997
Common stock, $1 par value 5,561,518
<PAGE> 2
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended December 31, 1997
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item Page No.
<S> <C>
1. Financial Statements 3 - 7
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
PART II -- OTHER INFORMATION
Item
4. Submission of Matter to a Vote of Security Holders 10
6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
INDEX TO EXHIBITS 12
</TABLE>
2
<PAGE> 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)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31 December 31
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross sales, less discounts, returns and allowances $ 36,823 $ 29,879 $ 67,688 $ 53,540
Royalty, interest and other income 17 50 114 52
---------- ---------- ---------- ----------
Total revenues 36,840 29,929 67,802 53,592
---------- ---------- ---------- ----------
Costs and expenses:
Cost of goods sold 23,292 18,993 42,541 33,721
Selling, general and administrative 8,322 7,473 16,192 13,995
Depreciation and amortization 443 428 880 874
Interest expense 352 355 626 641
---------- ---------- ---------- ----------
Total costs and expenses 32,409 27,249 60,239 49,231
---------- ---------- ---------- ----------
Income before provision for income taxes 4,431 2,680 7,563 4,361
Provision for income taxes 1,700 980 2,900 1,598
========== ========== ========== ==========
Net income $ 2,731 $ 1,700 $ 4,663 $ 2,763
========== ========== ========== ==========
Earnings per common share $ 0.49 $ 0.31 $ 0.84 $ 0.51
========== ========== ========== ==========
Earnings per common share - assuming dilution $ 0.48 $ 0.31 $ 0.82 $ 0.51
========== ========== ========== ==========
Common shares outstanding 5,552 5,432 5,537 5,417
========== ========== ========== ==========
Common shares outstanding - assuming dilution 5,732 5,464 5,684 5,450
========== ========== ========== ==========
Cash dividends per common share None None None None
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
3
<PAGE> 4
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
---------- ----------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 948 $ 554
Accounts receivable, net 22,162 15,210
Inventories:
Raw materials and work in process 5,284 5,982
Finished goods 31,195 26,278
Other current assets 2,471 2,489
---------- ----------
Total current assets 62,060 50,513
---------- ----------
Property and equipment, at cost 10,208 9,652
Accumulated depreciation (5,304) (4,797)
---------- ----------
Net property and equipment 4,904 4,855
---------- ----------
Other assets:
Goodwill, less amortization 7,575 7,941
Other assets, less amortization 2,087 2,055
---------- ----------
Total other assets 9,662 9,996
---------- ----------
TOTAL ASSETS $ 76,626 $ 65,364
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,816 $ 3,180
Accrued expenses 4,522 3,979
---------- ----------
Total current liabilities 8,338 7,159
---------- ----------
Other liabilities:
Notes payable 20,636 15,850
Other noncurrent liabilities 246 226
---------- ----------
Total other liabilities 20,882 16,076
---------- ----------
Stockholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $1 par value, 10,000,000 shares authorized,
5,561,518 shares and 5,490,091 shares issued and outstanding
as of December 31, 1997, and June 30, 1997, respectively 5,562 5,490
Additional paid-in capital 19,459 18,732
Retained earnings 22,385 17,907
---------- ----------
Total stockholders' equity 47,406 42,129
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 76,626 $ 65,364
========== ==========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
4
<PAGE> 5
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,663 $ 2,763
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 540 523
Amortization 411 429
Other (134) (38)
Change in assets and liabilities:
Accounts receivable (6,952) (1,877)
Inventories (4,219) (6,187)
Other assets 27 599
Accounts payable 636 (1,069)
Accrued expenses 563 1,125
---------- ----------
Net cash used for operating activities (4,465) (3,732)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (726) (423)
---------- ----------
Net cash used for investing activities (726) (423)
---------- ----------
Cash flows from financing activities:
Exercise of employee stock options, net of purchase of treasury stock 204 --
Sale of stock to stock purchase program 595 418
Proceeds from borrowings 29,000 25,950
Payments under borrowings (24,214) (21,750)
---------- ----------
Net cash provided by financing activities 5,585 4,618
---------- ----------
Net increase in cash and cash equivalents 394 463
Cash and cash equivalents at beginning of period 554 88
========== ==========
Cash and cash equivalents at end of period $ 948 $ 551
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 537 $ 774
Income taxes 3,024 816
Noncash activities:
None
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
5
<PAGE> 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 and six
month periods ended December 31, 1997, are not necessarily indicative of the
results that may be expected for the year ended June 30, 1998. 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, 1997.
Note 2 - Impact of New Accounting Standards.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." SFAS No. 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Dilutive earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where necessary, restated to conform to SFAS No. 128 requirements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 requires that an enterprise report, by major
component and as a single total, the change in its equity during the period
from nonowner sources, and SFAS No. 131 establishes annual and interim
reporting requirements for an enterprise's operating segments and related
disclosures about its products and services, geographical areas in which it
operates and major customers. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted. Effects
of the adoption of these statements during fiscal year 1999 will primarily be
limited to the form and content of the Company's disclosures and is not
expected to materially impact the Company's consolidated financial position or
statements of operations, stockholders' equity and cash flows.
6
<PAGE> 7
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)
Note 3 - Earnings Per Share.
The following sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31 December 31
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per per share:
Net Income $ 2,731 $ 1,700 $ 4,663 $ 2,763
======== ======== ======== ========
Denominator:
Denominator for basic earnings per
share - weighted average shares 5,552 5,432 5,537 5,417
Effect of dilutive securities:
Employee stock options 152 32 124 33
Director stock deferral plan 8 0 7 0
Director stock options 20 0 16 0
-------- -------- -------- --------
Dilutive potential common shares 180 32 147 33
Denominator for diluted earnings per
share - adjusted weighted - average
shares and assumed conversions 5,732 5,464 5,684 5,450
======== ======== ======== ========
Basic earnings per share $ 0.49 $ 0.31 $ 0.84 $ 0.51
======== ======== ======== ========
Diluted earnings per share $ 0.48 $ 0.31 $ 0.82 $ 0.51
======== ======== ======== ========
</TABLE>
7
<PAGE> 8
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") 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.
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 Six Months Ended December 31, 1997 Compared to the Three and Six
Months Ended December 31, 1996
For the three month period ended December 31, 1997, net sales increased 23.2%
to $36,823,000 as compared to net sales of $29,879,000 for the same period last
year. Net income for the second quarter increased 60.7% to $2,731,000 or $.48
per share, compared to net income of $1,700,000 or $.31 per share, for the same
three months last year.
For the six month period ended December 31, 1997, net sales increased 26.4% to
$67,688,000 as compared to net sales of $53,540,000 for the same period last
year. Net income for the six month period increased 68.8% to $4,663,000 or $.82
per share, compared to net income of $2,763,000 or $.51 per share, for the same
six months last year.
Women's products had net sales increases over the prior year in the comparable
three and six month periods of $5,846,000 and $12,406,000, respectively. The
women's product net sales for the three and six month periods of fiscal 1998
were higher than the same periods last year due in part to initial order
shipments of scarves, women's and children's socks, hair goods and Jones New
York(R) handbags to certain key customers in addition to increased women's
accessories sales.
Men's products had net sales increases over the prior year in the comparable
three and six month periods of $1,098,000 and $1,742,000, respectively. The
men's products had net sales increases for the three and six month periods of
fiscal 1998 due to increased retail store distribution under the Haggar(R) and
Greg Norman Collection(R) brand names.
For the three and six month periods gross margins increased 0.3% and 0.2% to
36.7% and 37.2%, respectively, as compared to the same periods for the prior
year. During the three and six month periods increases in men's gross margins
offset lower women's product sales gross margins.
Selling, general and administrative expenses as a percentage of net sales for
the three and six months ended December 31, 1997 decreased 2.4% and 2.2%,
respectively, as compared to the same periods of the prior year. A portion of
this decrease resulted from a larger mix of women's product sales, which, on a
percentage of sales basis, incur lower variable selling expenses than men's
product sales. Additionally, the majority of the sales increases for the three
and six month periods of fiscal 1998 were to customers on which no sales
commissions are paid, which decreased selling costs as a percentage of sales.
Although the Company's selling, general and administrative expenses were
favorably impacted by the larger mix of women's product sales, the Company
anticipates that such expenses in the future will be in line with historical
trends.
The effective tax rate for the six months ended December 31, 1997 was 38.3%
compared to 36.6% for the same prior year period due to increased state income
taxes.
8
<PAGE> 9
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
bank credit lines aggregating $50,000,000 which can be used for seasonal
borrowings and letters of credit. The Company also has a Canadian line of
credit for approximately $1,000,000 secured by a letter of credit from a U.S.
bank. The Company's borrowings under its credit lines were $20,636,000 and
$18,800,000 as of December 31, 1997 and 1996, respectively.
For the six months ended December 31, 1997, the Company's operating activities
used cash of $4,465,000 compared to $3,732,000 for the same period last year.
The increase in the net use of cash relates to the increasing sales trends
during the first half of fiscal 1998 requiring increased inventory levels and
increases in accounts receivable due to higher sales.
Capital expenditures were $726,000 for the six months ended December 31, 1997.
The increase of $303,000 over the same prior year period is due primarily to
the purchase of software applications for the Company's management information
systems.
The Company believes that its sources of liquidity are sufficient to fund its
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 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.
9
<PAGE> 10
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of stockholders was held on October 16, 1997.
(b) The matters voted upon were as follows:
(i) The election of three directors in Class I to serve for three-year
terms expiring in 2000, 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Dr. James F. Gaertner
---------------------
For 4,753,401 Against/Withheld 5,597 Abstain -0- Broker Non-votes -0-
Ms. Maxine K. Clark
-------------------
For 4,753,064 Against/Withheld 5,934 Abstain -0- Broker Non-votes -0-
Mr. Gene Stallings
------------------
For 4,726,073 Against/Withheld 32,925 Abstain -0- Broker Non-votes -0-
</TABLE>
Directors whose terms continued after the annual meeting are as
follows:
Mr. J.S.B. Jenkins
Mr. C.A. Rundell, Jr.
Mr. Robert E. Runice
Mr. Clayton Niles retired upon conclusion of the annual meeting.
Dr. Gaertner was appointed Chairman of the Board.
(ii) The approval of the Tandy Brands Accessories, Inc. 1997 Employee
Stock Option Plan (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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
For 3,938,623 Against/Withheld 31,365 Abstain 61,608 Broker Non-votes 727,402
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December
31, 1997. The exhibits filed as a part of this report are listed below.
Exhibit No. Description
27 Financial Data Schedule
10
<PAGE> 11
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 13, 1998
11
<PAGE> 12
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Reference
(If applicable)
-------------------------------------------------------------------
Exhibit Number and Description Form Date File No. Exhibit
- ------------------------------ ---- ---- -------- -------
<S> <C> <C> <C> <C>
(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 11/2/90 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 11/2/90 33-37588 10.5
(27) Financial Data Schedule
27.1 Financial Data Schedule N/A N/A N/A N/A
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY
BRANDS ACCESSORIES, INC.'S DECEMBER 31, 1997, FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILINGS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 948
<SECURITIES> 0
<RECEIVABLES> 24,300
<ALLOWANCES> 2,138
<INVENTORY> 36,479
<CURRENT-ASSETS> 62,060
<PP&E> 10,208
<DEPRECIATION> 5,304
<TOTAL-ASSETS> 76,626
<CURRENT-LIABILITIES> 8,338
<BONDS> 20,636
0
0
<COMMON> 5,562
<OTHER-SE> 41,844
<TOTAL-LIABILITY-AND-EQUITY> 76,626
<SALES> 67,688
<TOTAL-REVENUES> 67,688
<CGS> 42,541
<TOTAL-COSTS> 42,541
<OTHER-EXPENSES> 880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 626
<INCOME-PRETAX> 7,563
<INCOME-TAX> 2,900
<INCOME-CONTINUING> 4,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,663
<EPS-PRIMARY> .84
<EPS-DILUTED> .82
</TABLE>
