<PAGE> 1
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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
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended September 30, 1999
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item Page No.
--------
<S> <C> <C>
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
</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
Ended
September 30
----------------------
1999 1998
-------- --------
<S> <C> <C>
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
</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>
September 30, June 30,
1999 1999
------------- ------------
<S> <C> <C>
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
============= ============
</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>
Three Months Ended
September 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
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
</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 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):
<TABLE>
<CAPTION>
September 30
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net income $ 2,768 $ 2,384
Foreign currency translation adjustments 22 (188)
------------ -----------
Comprehensive income $ 2,790 $ 2,196
============ ===========
</TABLE>
6
<PAGE> 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):
<TABLE>
<CAPTION>
Three Months
Ended
September 30
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
7
<PAGE> 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):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1999 1998
------- -------
<S> <C> <C>
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%
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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-
</TABLE>
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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
For 3,621,805 Against/Withheld 233,867 Abstain 20,311 Broker Non-votes 1,288,429
</TABLE>
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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
For 3,069,688 Against/Withheld 793,979 Abstain 12,316 Broker Non-votes 1,288,429
</TABLE>
14
<PAGE> 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:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.34 Promissory Note between Tandy Brands
Accessories, Inc. and Bank of America, N.A.
dated November 1, 1999.
27.1 Financial Data Schedule
</TABLE>
(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
<PAGE> 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
<PAGE> 17
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> <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 11/02/90 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
</TABLE>
17
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-2000
<CASH> 681
<SECURITIES> 0
<RECEIVABLES> 50,445
<ALLOWANCES> 1,731
<INVENTORY> 60,680
<CURRENT-ASSETS> 112,207
<PP&E> 17,529
<DEPRECIATION> 6,808
<TOTAL-ASSETS> 142,851
<CURRENT-LIABILITIES> 27,108
<BONDS> 50,000
0
0
<COMMON> 5,796
<OTHER-SE> 59,662
<TOTAL-LIABILITY-AND-EQUITY> 142,851
<SALES> 53,256
<TOTAL-REVENUES> 53,256
<CGS> 34,372
<TOTAL-COSTS> 34,372
<OTHER-EXPENSES> 833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893
<INCOME-PRETAX> 4,522
<INCOME-TAX> 1,754
<INCOME-CONTINUING> 2,768
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,768
<EPS-BASIC> .48
<EPS-DILUTED> .47
</TABLE>
