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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 March 31, 2000 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 March 31, 2000
Common stock, $1 par value 5,808,968
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended March 31, 2000
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item Page No.
- ---- --------
<S> <C>
1. Consolidated 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
6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX TO EXHIBITS 16
</TABLE>
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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 Nine Months
Ended Ended
March 31 March 31
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross sales, less discounts, returns and allowances $ 39,686 $ 38,247 $ 150,508 $ 136,650
Cost of goods sold 25,665 24,162 95,938 86,016
------------ ------------ ------------ ------------
Gross margin 14,021 14,085 54,570 50,634
Selling, general and administrative expenses 11,984 9,882 37,571 33,396
Depreciation and amortization 861 760 2,560 2,314
------------ ------------ ------------ ------------
Total operating expenses 12,845 10,642 40,131 35,710
------------ ------------ ------------ ------------
Operating income 1,176 3,443 14,439 14,924
Interest expense (726) (716) (2,541) (2,304)
Royalty income and early terminations of
license agreements 646 73 1,720 117
------------ ------------ ------------ ------------
Income before provision for income taxes 1,096 2,800 13,618 12,737
Provision for income taxes 425 1,085 5,286 4,960
------------ ------------ ------------ ------------
Net income $ 671 $ 1,715 $ 8,332 $ 7,777
============ ============ ============ ============
Earnings per common share $ 0.12 $ 0.30 $ 1.44 $ 1.36
============ ============ ============ ============
Earnings per common share - assuming dilution $ 0.12 $ 0.29 $ 1.42 $ 1.34
============ ============ ============ ============
Common shares outstanding 5,763 5,746 5,786 5,710
============ ============ ============ ============
Common shares outstanding - assuming dilution 5,808 5,835 5,849 5,799
============ ============ ============ ============
Cash dividends per common share None None None None
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
3
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
File Number 0-18927
Form 10-Q
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,397 $ 180
Accounts receivable, net 33,604 33,514
Inventories:
Raw materials and work in process 4,959 6,879
Finished goods 48,040 48,680
Other current assets 2,591 1,823
------------ ------------
Total current assets 90,591 91,076
------------ ------------
Property and equipment, at cost 18,567 17,187
Accumulated depreciation (8,089) (6,722)
------------ ------------
Net property and equipment 10,478 10,465
------------ ------------
Other assets:
Goodwill, less amortization 11,440 10,373
Other assets, less amortization 8,000 8,224
------------ ------------
Total other assets 19,440 18,597
------------ ------------
TOTAL ASSETS $ 120,509 $ 120,138
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,935 $ 5,835
Accrued expenses 5,187 4,394
------------ ------------
Total current liabilities 8,122 10,229
------------ ------------
Other liabilities:
Notes payable 42,025 47,425
Other noncurrent liabilities 193 292
------------ ------------
Total other liabilities 42,218 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,
5,808,968 shares and 5,761,952 shares issued and outstanding
as of March 31, 2000, and June 30, 1999, respectively 5,809 5,762
Additional paid-in capital 22,446 21,900
Cumulative other comprehensive income (320) (381)
Retained earnings 43,243 34,911
Treasury stock, at cost (1,009) --
------------ ------------
Total stockholders' equity 70,169 62,192
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,509 $ 120,138
============ ============
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
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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>
Nine Months Ended
March 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,332 $ 7,777
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 1,519 1,276
Amortization 1,229 1,146
Other (130) (82)
Change in assets and liabilities:
Accounts receivable 741 (4,188)
Inventories 3,536 (2,859)
Other assets (656) (90)
Accounts payable (2,900) (3,640)
Accrued expenses 474 (2,217)
------------ ------------
Net cash provided by (used for) operating activities 12,145 (2,877)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,551) (2,413)
Purchase of Frank Spielberg, LLC (3,561) --
------------ ------------
Net cash used for investing activities (5,112) (2,413)
------------ ------------
Cash flows from financing activities:
Exercise of employee stock options 114 222
Sale of stock to stock purchase program 1,129 1,103
Purchase of treasury stock (1,659) --
Proceeds from borrowings 68,320 52,392
Payments under borrowings (73,720) (48,292)
------------ ------------
Net cash provided by (used for) financing activities (5,816) 5,425
------------ ------------
Net increase in cash and cash equivalents 1,217 135
Cash and cash equivalents at beginning of period 180 283
------------ ------------
Cash and cash equivalents at end of period $ 1,397 $ 418
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,909 $ 2,200
Income taxes 4,855 3,344
Noncash activities:
None
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
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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 nine month periods ended
March 31, 2000, 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 - 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 3 - Comprehensive Income.
The components of comprehensive income, net of related tax, for the
three and nine months ended March 31, 2000 and 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31 March 31
------------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 671 $ 1,715 $ 8,332 $ 7,777
Foreign currency translation adjustments (12) 53 61 (154)
------------ ------------ ------------ ------------
Comprehensive income $ 659 $ 1,768 $ 8,393 $ 7,623
============ ============ ============ ============
</TABLE>
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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 Nine Months
Ended Ended
March 31 March 31
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income $ 671 $ 1,715 $ 8,332 $ 7,777
============ ============ ============ ============
Denominator:
Weighted average shares outstanding 5,750 5,730 5,770 5,693
Contingently issuable shares 13 16 16 17
------------ ------------ ------------ ------------
Denominator for basic earnings per
share - weighted average shares 5,763 5,746 5,786 5,710
Effect of dilutive securities:
Employee stock options 37 75 53 76
Director stock options 8 14 10 13
------------ ------------ ------------ ------------
Dilutive potential common shares 45 89 63 89
Denominator for diluted earnings per
share - adjusted weighted - average
shares 5,808 5,835 5,849 5,799
============ ============ ============ ============
Basic earnings per share $ 0.12 $ 0.30 $ 1.44 $ 1.36
============ ============ ============ ============
Diluted earnings per share $ 0.12 $ 0.29 $ 1.42 $ 1.34
============ ============ ============ ============
</TABLE>
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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 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 Nine Months Ended
March 31, March 31,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue from external customers:
Men's accessories $ 24,323 $ 23,007 $ 86,383 $ 82,160
Women's accessories 15,363 15,240 64,125 54,490
------------ ------------ ------------ ------------
$ 39,686 $ 38,247 $ 150,508 $ 136,650
============ ============ ============ ============
Operating income (loss) (1):
Men's accessories 2,290 2,827 11,458 10,750
Women's accessories (1,114) 616 2,981 4,174
------------ ------------ ------------ ------------
$ 1,176 $ 3,443 $ 14,439 $ 14,924
============ ============ ============ ============
Interest expense (726) (716) (2,541) (2,304)
Other income (2) 646 73 1,720 117
------------ ------------ ------------ ------------
Income before income taxes $ 1,096 $ 2,800 $ 13,618 $ 12,737
============ ============ ============ ============
Depreciation and amortization expense:
Men's accessories $ 577 $ 521 $ 1,700 $ 1,647
Women's accessories 284 239 860 667
------------ ------------ ------------ ------------
$ 861 $ 760 $ 2,560 $ 2,314
============ ============ ============ ============
Capital expenditures:
Men's accessories $ 94 $ (66) $ 136 $ 870
Women's accessories 232 15 493 175
Corporate 228 404 1,143 1,368
------------ ------------ ------------ ------------
$ 554 $ 353 $ 1,772 $ 2,413
============ ============ ============ ============
</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
the early terminations of a license agreements (See Note 7) not
specifically identifiable to a segment.
8
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)
Note 6 - Stock Repurchase Program
On April 26, 2000, the Company's Board of Directors 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 (the "repurchase program"). This program is an
extension of the $2,000,000 repurchase program the Company initiated on October
20, 1999. 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. During the nine
months ended March 31, 2000, the Company repurchased 140,800 shares of treasury
stock under the repurchase program at a cost of approximately $1,659,000. During
the nine months ended March 31, 2000, 50,452 shares of treasury stock were
reissued to the Company's employee stock purchase program.
Note 7 - Terminations of License Agreements
On November 9, 1999, the Company and JONES APPAREL GROUP amended their existing
licensing agreement. Under the amended agreement Tandy Brands Accessories will
continue to design and market men's belts and personal leather goods 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 paid the Company $1,500,000 in cash, of which a portion was used
to wind down functions related to the license arrangements. Consequently, the
results for the nine-month period ended March 31, 2000 include a one-time
benefit, net of related costs of $1,000,000 from the termination of this
licensing agreement.
On March 3, 2000, the Company and JONES APPAREL GROUP amended their existing
licensing agreement. Under the amended agreement Tandy Brands Accessories will
continue to design and market men's small leather goods and belts under various
JONES NEW YORK(R) brands, but will no longer design and market women's small
leather goods under any JONES NEW YORK(R) brands. As compensation for the early
termination of the small leather goods license rights, Jones Apparel Group paid
Tandy Brands $800,000 in cash. Additionally, Jones Apparel reimbursed Tandy
Brands for its current on-hand small leather goods inventory of approximately
$950,000. Consequently, the results for the three and nine month periods ended
March 31, 2000 include a one-time benefit, net of related costs of $600,000 from
the termination of this licensing agreement.
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 and
suspenders. Tandy Brands' merchandise is marketed under a broad portfolio of
nationally recognized licensed and proprietary brand names, including Jones New
York(R), Florsheim(R), Perry Ellis(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.
RESULTS OF OPERATIONS
Sales and gross margin data from the Company's segments for the three
and nine months ended fiscal 2000 compared to the same periods last year were as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
Men's accessories $ 24,323 $ 23,007 $ 86,383 $ 82,160
Women's accessories 15,363 15,240 64,125 54,490
------------ ------------ ------------ ------------
Total net sales $ 39,686 $ 38,247 $ 150,508 $ 136,650
============ ============ ============ ============
Gross margin:
Men's accessories $ 9,484 $ 9,371 $ 34,161 $ 32,736
Women's accessories 4,537 4,714 20,409 17,898
------------ ------------ ------------ ------------
Total gross margin $ 14,021 $ 14,085 $ 54,570 $ 50,634
============ ============ ============ ============
Gross margin as a percentage of sales:
Men's accessories 39.0% 40.7% 39.5% 39.8%
Women's accessories 29.5% 30.9% 31.8% 32.8%
Total 35.3% 36.8% 36.3% 37.1%
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
THREE AND NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE AND NINE MONTHS
ENDED MARCH 31, 1999
NET SALES
For the three-month period ended March 31, 2000, net sales increased 3.8% to
$39,686,000 as compared to net sales of $38,247,000 for the same period last
year. The overall increase was attributable to higher sales volume in existing
men's product lines and sales from the purchase of assets of Frank Spielberg
Sales, LLC. Although the Company achieved consistent core growth in men's
accessories, the overall sales increase did not offset decreases in women's
small leather goods and handbag sales resulting in a 2% decrease in core product
sales as compared to prior year quarter. The lower than expected sales were
caused primarily by weak reorders as a result of soft holiday retail sales and
decreased women's accessories trend item sales as compared to the same period
last year. Additionally, sales were impacted by the discontinuation of business
of several retail customers as a result of industry consolidation, store
closures and bankruptcies. These sales pressures were primarily concentrated on
our women's accessory business including our small leather goods, belts and
trend item product categories. The aforementioned sales shortfall in women's
accessories had a disproportionate effect on selling, general and administrative
expenses as a percentage of sales and net income during the three-month period
ended March 31, 2000. For the nine-month period ended March 31, 2000, net sales
increased 10.1% to $150,508,000 as compared to net sales of $136,650,000 for 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 March 31, 2000 decreased $64,000,
or 0.5% as compared to the same period for the prior year. As a percentage of
sales, men's gross margin decreased 1.7% due to a higher sales mix of mass
merchant sales compared to the prior year. The women's gross margin percentage
decreased 1.4% and 1.0%, respectively for the three and nine month periods ended
March 31, 2000 as compared to the same periods last year. The decrease is the
result of the termination of the JONES NEW YORK(R) handbag and small leather
good product lines (See Note 7) as well as higher mass merchant sales as
compared to the same periods in the prior year.
OPERATING EXPENSES
Selling, general and administrative expenses as a percentage of net sales for
the three and nine months ended March 31, 2000 increased to 30.2% and 25.0%,
respectively as compared to 25.8% and 24.4% for the same periods in the prior
year, respectively. The increase resulted from the timing of the wind down of
the JONES NEW YORK handbag product line, the launch of the Rolfs(R) handbag line
as well as increased levels of selling, general and administrative expenses in
anticipation of higher sales volume.
Depreciation and amortization expenses increased $101,000 and $246,000 for the
three and nine months ended March 31, 2000, respectively, compared to the same
periods in the prior year. The increase is attributable to capital expenditures
related to the Company's management information and distribution
11
<PAGE> 12
software systems installed during fiscal 1999 and the amortization of goodwill
recorded in connection with the Spielberg acquisition.
Interest expense for the three and nine months ended March 31, 2000 increased
$10,000 and $237,000, respectively as compared to the same periods in the prior
year. The increase is primarily related to higher weighted average interest
rates as compared to the same periods in the prior year.
The effective tax rate for the nine months ended March 31, 2000 was 38.8% which
is consistent with the same period in the prior year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Net income for the three-month period ended March 31, 2000 decreased 60.9% to
$671,000, or $0.12 per diluted share, compared to net income of $1,715,000, or
$0.29 per diluted share for the same period in the prior year. On March 3, 2000,
the company negotiated an early termination of its small leather goods licensing
agreement with Jones New York. (See Note 7). Both the three and nine month
results include a one time benefit, including related costs, of $600,000 from
the termination of this licensing agreement. Excluding the net benefit of the
early license termination, net income for the three-month period ended March
31,2000 decreased 82.3% to $304,000, or $0.05 per diluted share from the same
period last year.
Net income for the nine months ended March 31, 2000 increased 7.1% to
$8,332,000, or $1.42 per diluted share, compared to net income of $7,777,000, or
$1.34 per diluted share, for the same period in the prior year. On March 3, 2000
and November 9, 1999, the Company negotiated an early termination of its Jones
New York handbag and small leather goods licensing agreements, respectively (See
Note 7). Excluding the net benefit of the early license termination realized
during the second and third quarter of fiscal 2000, net income for the nine
months decreased 5.5% to $7,353,000, or $1.26 per diluted share from the same
period in the prior year.
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 $42,025,000 and $46,700,000 as of March 31, 2000 and 1999,
respectively. The decrease in borrowings under these lines of credit reflects
the consistent application of cash provided by operations.
For the nine months ended March 31, 2000, the Company's operating activities
provided cash of $12,145,000 compared to a use of cash of $2,877,000 for the
same period last year. The increase was attributable to timing of cash receipt
collections related to increased sales, reduced inventory levels and payments
made on behalf of the termination of the Company's Jones New York handbag and
small leather goods licensing agreements during the nine months ended March 31,
2000.
Capital expenditures were $1,551,000 for the nine months ended March 31, 2000.
The decrease of $862,000 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.
12
<PAGE> 13
See Note 2 for a discussion of the purchase of Frank Spielberg, LLC.
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 6 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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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 March 31, 2000, the Company had borrowings under its credit
lines of $42,025,000 bearing a weighted-average interest rate of 6.51%. In
fiscal 1999, 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
March 31, 2000, the receive and pay rates related to the interest rate swap were
7.09% 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 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
2000. The exhibits filed as a part of this report are listed below.
Exhibit No. Description
27.1 Financial Data Schedule
14
<PAGE> 15
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: May 12, 2000
15
<PAGE> 16
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 11/02/90 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
4.5 Form of Rights Certificate
of Tandy Brands
Accessories, Inc. 8-K 11/02/99 0-18927 4.0
4.6 Amended and Restated
Rights Agreement dated
October 19, 1999,
Between Tandy Brands
Accessories, Inc.
and Bank Boston, N.A. 8-K 11/02/99 0-18927 4.0
(27) Financial Data Schedule
27.1 Financial Data Schedule N/A N/A N/A N/A
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS
ACCESSORIES, INC.'S MARCH 31, 2000, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,397
<SECURITIES> 0
<RECEIVABLES> 35,090
<ALLOWANCES> 1,486
<INVENTORY> 52,999
<CURRENT-ASSETS> 90,591
<PP&E> 18,567
<DEPRECIATION> 8,089
<TOTAL-ASSETS> 120,509
<CURRENT-LIABILITIES> 8,122
<BONDS> 42,025
0
0
<COMMON> 5,809
<OTHER-SE> 64,360
<TOTAL-LIABILITY-AND-EQUITY> 120,509
<SALES> 150,508
<TOTAL-REVENUES> 150,508
<CGS> 95,938
<TOTAL-COSTS> 95,938
<OTHER-EXPENSES> 2,560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,541
<INCOME-PRETAX> 13,618
<INCOME-TAX> 5,286
<INCOME-CONTINUING> 8,332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,332
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.42
</TABLE>
