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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 December 31, 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 December 31, 1999
Common stock, $1 par value 5,800,572
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TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended December 31, 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>
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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 Six Months
Ended Ended
December 31 December 31
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 57,566 $ 54,122 $ 110,822 $ 98,403
Cost of goods sold 35,901 34,053 70,273 61,854
---------- ---------- ---------- ----------
Gross margin 21,665 20,069 40,549 36,549
Selling, general and administrative expenses 12,920 12,401 25,587 23,514
Depreciation and amortization 866 807 1,699 1,554
---------- ---------- ---------- ----------
Total operating expenses 13,786 13,208 27,286 25,068
---------- ---------- ---------- ----------
Operating income 7,879 6,861 13,263 11,481
Interest expense (922) (843) (1,815) (1,588)
Royalty income and early termination of
license agreement 1,043 24 1,074 44
---------- ---------- ---------- ----------
Income before provision for income taxes 8,000 6,042 12,522 9,937
Provision for income taxes 3,107 2,364 4,861 3,875
---------- ---------- ---------- ----------
Net income $ 4,893 $ 3,678 $ 7,661 $ 6,062
========== ========== ========== ==========
Earnings per common share $ 0.84 $ 0.64 $ 1.32 $ 1.07
========== ========== ========== ==========
Earnings per common share - assuming dilution $ 0.83 $ 0.63 $ 1.30 $ 1.05
========== ========== ========== ==========
Common shares outstanding 5,802 5,714 5,799 5,692
========== ========== ========== ==========
Common shares outstanding - assuming dilution 5,868 5,795 5,871 5,782
========== ========== ========== ==========
Cash dividends per common share None None None None
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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<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,
1999 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,423 $ 180
Accounts receivable, net 41,556 33,514
Inventories:
Raw materials and work in process 5,306 6,879
Finished goods 49,039 48,680
Other current assets 2,742 1,823
------------ ------------
Total current assets 100,066 91,076
------------ ------------
Property and equipment, at cost 17,975 17,187
Accumulated depreciation (7,276) (6,722)
------------ ------------
Net property and equipment 10,699 10,465
------------ ------------
Other assets:
Goodwill, less amortization 11,652 10,373
Other assets, less amortization 7,975 8,224
------------ ------------
Total other assets 19,627 18,597
------------ ------------
TOTAL ASSETS $ 130,392 $ 120,138
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,759 $ 5,835
Accrued expenses 8,557 4,394
------------ ------------
Total current liabilities 12,316 10,229
------------ ------------
Other liabilities:
Notes payable 47,825 47,425
Other noncurrent liabilities 356 292
------------ ------------
Total other liabilities 48,181 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,
5,800,572 shares and 5,761,952 shares issued and outstanding
as of December 31, 1999, and June 30, 1999, respectively 5,801 5,762
Additional paid-in capital 22,398 21,900
Cumulative other comprehensive income (308) (381)
Retained earnings 42,572 34,911
Treasury stock, at cost (568) --
------------ ------------
Total stockholders' equity 69,895 62,192
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 130,392 $ 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>
Six Months Ended
December 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,661 $ 6,062
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation 941 857
Amortization 821 765
Other 49 (112)
Change in assets and liabilities:
Accounts receivable (7,211) (9,310)
Inventories 2,190 (6,029)
Other assets (950) (374)
Accounts payable (2,076) (1,126)
Accrued expenses 4,007 (336)
---------- ----------
Net cash provided by (used for) operating activities 5,432 (9,603)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (997) (2,059)
Purchase of Frank Spielberg, LLC (3,561) 0
---------- ----------
Net cash used for investing activities (4,558) (2,059)
---------- ----------
Cash flows from financing activities:
Exercise of employee stock options 37 171
Sale of stock to stock purchase program 791 871
Purchase of treasury stock (859) 0
Proceeds from borrowings 51,395 40,942
Payments under borrowings (50,995) (29,892)
---------- ----------
Net cash provided by financing activities 369 12,092
---------- ----------
Net increase in cash and cash equivalents 1,243 430
Cash and cash equivalents at beginning of period 180 283
---------- ----------
Cash and cash equivalents at end of period $ 1,423 $ 713
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,460 $ 1,139
Income taxes 2,530 2,113
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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<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, 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 - 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 six months ended December 31, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31 December 31
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 4,893 $ 3,678 $ 7,661 $ 6,062
Foreign currency translation adjustments 51 (19) 73 (207)
---------- ---------- ---------- ----------
Comprehensive income $ 4,944 $ 3,659 $ 7,734 $ 5,855
========== ========== ========== ==========
</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 Six Months
Ended Ended
December 31 December 31
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per
share:
Net income $ 4,893 $ 3,678 $ 7,661 $ 6,062
========== ========== ========== ==========
Denominator:
Weighted average shares outstanding 5,784 5,700 5,782 5,675
Contingently issuable shares 18 14 17 17
---------- ---------- ---------- ----------
Denominator for basic earnings per
share - weighted average shares 5,802 5,714 5,799 5,692
Effect of dilutive securities:
Employee stock options 56 69 61 77
Director stock options 10 12 11 13
---------- ---------- ---------- ----------
Dilutive potential common shares 66 81 72 90
Denominator for diluted earnings per
share - adjusted weighted - average
shares 5,868 5,795 5,871 5,782
========== ========== ========== ==========
Basic earnings per share $ 0.84 $ 0.64 $ 1.32 $ 1.07
========== ========== ========== ==========
Diluted earnings per share $ 0.83 $ 0.63 $ 1.30 $ 1.05
========== ========== ========== ==========
</TABLE>
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<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 Six Months Ended
December 31, December 31,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from external customers:
Men's accessories $ 33,976 $ 34,010 $ 62,060 $ 59,153
Women's accessories 23,590 20,112 48,762 39,250
---------- ---------- ---------- ----------
$ 57,566 $ 54,122 $ 110,822 $ 98,403
========== ========== ========== ==========
Operating income (loss) (1):
Men's accessories 6,014 5,105 9,169 7,923
Women's accessories 1,865 1,756 4,094 3,558
---------- ---------- ---------- ----------
$ 7,879 $ 6,861 $ 13,263 $ 11,481
========== ========== ========== ==========
Interest expense 922 843 1,815 1,588
Other (income) expense (2) (1,043) (24) (1,074) (44)
---------- ---------- ---------- ----------
Income before income taxes $ 8,000 $ 6,042 $ 12,522 $ 9,937
========== ========== ========== ==========
Depreciation and amortization expense:
Men's accessories $ 570 $ 585 $ 1,123 $ 1,126
Women's accessories 296 222 576 428
---------- ---------- ---------- ----------
$ 866 $ 807 $ 1,699 $ 1,554
========== ========== ========== ==========
Capital expenditures:
Men's accessories $ 12 $ 738 $ 42 $ 936
Women's accessories 248 59 261 160
Corporate 427 629 915 963
---------- ---------- ---------- ----------
$ 687 $ 1,426 $ 1,218 $ 2,059
========== ========== ========== ==========
</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 termination of a license agreement (See Note 9.) not specifically
identifiable to a segment.
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<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 - Stock Repurchase Program
On October 20, 1999, 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"). 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 three months ended December 31, 1999, the
Company repurchased 62,300 shares of treasury stock under the Repurchase Program
at a cost of approximately $859,000. During the three months ended December 31,
1999, 21,079 shares of treasury stock were reissued to the Company's employee
stock purchase program.
Note 8 - Stockholder Rights Plan
On November 2, 1999, the Company's Board of Directors 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 was 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.
Note 9 - Termination of License Agreement
On November 9, 1999, the Company and JONES APPAREL GROUP agreed to amend 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 will paid the Company $1.5 million in cash,
of which a portion will be used to wind down functions related to the license
arrangements. Consequently, the results for the three and six month periods
ended December 31, 1999 include a one-time benefit, net of related costs of $1.0
million from the termination of this licensing agreement.
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<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 retired from the Board. 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.
10
<PAGE> 11
RESULTS OF OPERATIONS
Sales and gross margin data from the Company's segments for the three
and six months ended fiscal 2000 compared to the same periods last year were as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales:
Men's accessories $ 33,976 $ 34,010 $ 62,060 $ 59,153
Women's accessories 23,590 20,112 48,762 39,250
---------- ---------- ---------- ----------
Total net sales $ 57,566 $ 54,122 $ 110,822 $ 98,403
========== ========== ========== ==========
Gross margin:
Men's accessories $ 13,945 $ 13,330 $ 24,677 $ 23,365
Women's accessories 7,720 6,739 15,872 13,184
---------- ---------- ---------- ----------
Total gross margin $ 21,665 $ 20,069 $ 40,549 $ 36,549
========== ========== ========== ==========
Gross margin as a percentage of sales:
Men's accessories 41.0% 39.2% 39.8% 39.5%
Women's accessories 32.7% 33.5% 32.5% 33.6%
Total 37.6% 37.1% 36.6% 37.1%
</TABLE>
THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE THREE AND SIX
MONTHS ENDED DECEMBER 31, 1998
NET SALES
For the three month period ended December 31, 1999, net sales increased 6.4% to
$57,566,000 as compared to net sales of $54,122,000 for the same period last
year. The overall sales increase was attributable to increased women's
accessories sales. The sales from the purchase of assets of Frank Spielberg
Sales, LLC accounted for 61% of the women's accessories sales increase with the
remaining increase attributable to the Company's existing women's product lines.
The decrease in men's accessories sales for the three months ended December 31,
1999 was due to the timing of initial shipments of Amity/Rolfs men's small
leather goods to certain mass merchants that occurred in the same period last
year. For the six month period ended December 31, 1999, net sales increased
12.6% to $110,822,000 as compared to net sales of $98,403,000 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 December 31, 1999 increased
$1,596,000, or 8.0% as compared to the same period for the prior year. As a
percentage of sales, men's gross margin increased 1.8% due to a higher sales mix
of department store and specialty retail sales compared to the prior year and
the first quarter of fiscal 2000. The women's gross margin percentage decreased
.8% and 1.1%, respectively for the three and six month periods ended December
31, 1999 as compared to the same periods last year. The decrease is the result
of the higher mass merchant sales as compared to the same periods in the prior
year.
11
<PAGE> 12
OPERATING EXPENSES
Selling, general and administrative expenses as a percentage of net sales for
the three and six months ended December 31, 1999 decreased .5% and .8%,
respectively as compared to the same periods in 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.
Depreciation and amortization expenses increased $59,000 and $145,000 for the
three and six months ended December 31, 1999, 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 software
systems installed during fiscal 1999 and the amortization of goodwill recorded
in connection with the Spielberg acquisition.
Interest expense for the three and six month periods ended December 31, 1999
increased $79,000 and $227,000, respectively as compared to the same periods in
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 six months ended December 31, 1999 was 38.8%
which is consistent with the same period in the prior year.
Net income for the three-month period ended December 31,1999 increased 33% to
$4,893,000, or $0.83 per diluted share, compared to net income of $3,678,000, or
$0.63 per diluted share for the same period in the prior year. On November 2,
1999, the company negotiated an early termination of its handbag licensing
agreement with Jones New York. (See Note 9.) Both the three and six month
results include a one time benefit, including related costs, of $1,000,000 from
the termination of this licensing agreement. Excluding the net benefit of the
early license termination, net income for the three-month period ended December
31,1999 increased 16.4% to $4,281,000, or $0.73 per diluted share from the same
period last year.
Net income for the six months ended December 31, 1999 increased 26.4% to
$7,661,000, or $1.30 per diluted share, compared to net income of $6,062,000, or
$1.05 per diluted share, for the same period in the prior year. Excluding the
net benefit of the early license termination, net income for the six months
increased 16.3% to $7,049,000, or $1.20 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 $47,825,000 and $53,650,000 as of December 31, 1999 and 1998,
respectively. The decrease in borrowings under these lines of credit is
consistent with the Company's increased sales.
See Note 6 for a discussion of certain amendments to these credit lines.
For the six months ended December 31, 1999, the Company's operating activities
provided cash of $5,432,000 compared to a use of cash of $9,603,000 for the same
period last year. The increase was attributable to timing of cash receipt
collections related to increased sales and estimated tax payments during the six
months ended December 31, 1999.
Capital expenditures were $997,000 for the six months ended December 31, 1999.
The decrease of $1,062,000 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.
See Note 2 for a discussion of the purchase of Frank Spielberg, LLC.
12
<PAGE> 13
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 7 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.
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 December 31, 1999 the Company had borrowings under its
credit lines of $47,825,000 bearing a weighted-average interest rate of 6.37%.
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 December 31, 1999, the receive and pay rates related to the interest rate
swap were 7.07% 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>
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>
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>
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.
The Company filed a report on Form 8-K during the quarter ended December 31,
1999 as listed below. The exhibits filed as a part of this report are listed
below.
(a) The following documents are filed as part of this report:
Exhibit No. Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Form 8-K on November 2, 1999 regarding the Amended and
Restated Rights Agreement dated October 19, 1999, between the Registrant and
Bank Boston, N.A. , as rights agent, including Form of Certificate of
Designation for the Preferred Stock, Form of Rights Certificate and the Summary
of Rights to purchase Preferred Stock.
15
<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: February 10, 2000
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>
(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>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS
ACCESSORIES, INC.'S DECEMBER 31, 1999, FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILINGS. DOLLARS ARE IN THOUSANDS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,423
<SECURITIES> 0
<RECEIVABLES> 43,767
<ALLOWANCES> 2,211
<INVENTORY> 54,345
<CURRENT-ASSETS> 100,066
<PP&E> 17,975
<DEPRECIATION> 7,276
<TOTAL-ASSETS> 130,392
<CURRENT-LIABILITIES> 12,316
<BONDS> 47,825
0
0
<COMMON> 5,801
<OTHER-SE> 64,094
<TOTAL-LIABILITY-AND-EQUITY> 130,392
<SALES> 110,822
<TOTAL-REVENUES> 110,822
<CGS> 70,273
<TOTAL-COSTS> 70,273
<OTHER-EXPENSES> 1,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,815
<INCOME-PRETAX> 12,522
<INCOME-TAX> 4,861
<INCOME-CONTINUING> 7,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,661
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.30
</TABLE>
