FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
(Mark One)
[X]FORM 10-Q/A
-----------
Amendment No. 1
---------------
QUARTERLY REPORT PURSUANT TOUNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberFOR THE QUARTER ENDED SEPTEMBER 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File NumberCOMMISSION FILE NUMBER 1-12368
THE LEATHER FACTORY, INC.
(Exact name of registrant as specified in its charter)A DELAWARE CORPORATION
IRS EMPLOYER IDENTIFICATION NO. 75-2543540
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3847 EAST LOOP 820 SOUTH, FT. WORTH, TEXAS 76119
(Address of principal executive offices) (Zip code)
(817) 496-4414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to by 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- ---- Indicate the number----
Number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class SharesCommon Stock, Par Value $0.0024, outstanding as of October
31, 2003: 10,470,461
EXPLANATORY NOTE: This Form 10-Q/A amends the Registrant's quarterly report on
Form 10-Q for the quarter ended September 30, 2003 - ---------------------------------------------- ---------------------------
Common Stock, par value $.0024 per share 10,470,161as filed on November 7, 2003
to correct the table containing the sales and operating income by segment for
the nine months ended September 30, 2002 as presented in Part 1, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the caption "Results of Operations".
1
THE LEATHER FACTORY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2003 and December 31, 2002 ---------------------------------- 3
Consolidated Statements of Operations
Three and nine months ended September 30, 2003 and 2002 ---------------------------------- 4
Consolidated Statements of Cash Flows
Nine months ended September 30, 2003 and 2002 ---------------------------------- 5
Consolidated Statements of Stockholders' Equity
Nine months ended September 30, 2003 and 2002 ---------------------------------- 6
Notes to Consolidated Financial Statements ---------------------------------- 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ---------------------------------- 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------- 18
PART II. OTHER INFORMATION
Item 4. Controls and Procedures ---------------------------------- 18
Item 6. Exhibits and Reports on Form 8-K ---------------------------------- 18
SIGNATURES ---------------------------------- 19
2
THE LEATHER FACTORY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 188,199 $ 101,557
Cash restricted for payment on revolving credit facility 510,155 553,839
Accounts receivable-trade, net of allowance for doubtful accounts of
$45,000 and $78,000, respectively 2,329,505 1,938,698
Inventory 11,621,127 12,695,344
Prepaid income taxes 52,707 55,644
Deferred income taxes 148,111 159,090
Other current assets 709,270 672,117
--------------- --------------
Total current assets 15,559,074 16,176,289
--------------- --------------
PROPERTY AND EQUIPMENT, at cost 5,517,844 5,321,749
Less accumulated depreciation and amortization (3,547,038) (3,301,898)
--------------- --------------
Property and equipment, net 1,970,806 2,019,851
GOODWILL, net of accumulated amortization of $753,000 and $734,000
in 2003 and 2002, respectively 700,262 686,484
OTHER INTANGIBLES, net of accumulated amortization of $151,000 and $113,000
in 2003 and 2002, respectively 445,289 483,507
OTHER ASSETS 331,776 309,471
--------------- --------------
$ 19,007,207 $ 19,675,602
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,432,291 $ 1,594,909
Accrued expenses and other liabilities 964,989 2,503,331
Notes payable and current maturities of long-term debt 2,671,929 4,218,968
--------------- --------------
Total current liabilities 5,069,209 8,317,208
--------------- --------------
DEFERRED INCOME TAXES 234,605 186,076
NOTES PAYABLE AND LONG-TERM DEBT, net of current maturities - 2,256
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock, $0.10 par value; 20,000 shares authorized,
none issued or outstanding - -
Common stock, $0.0024 par value; 25,000,000 shares authorized,
10,470,461 and 10,149,961 shares issued 25,129 24,360
Paid-in capital 4,488,819 4,163,901
Retained earnings 9,219,247 7,064,345
Less: notes receivable secured by common stock (20,000) (44,003)
Accumulated other comprehensive loss (9,802) (38,541)
--------------- --------------
Total stockholders' equity 13,703,393 11,170,062
--------------- --------------
$ 19,007,207 $ 19,675,602
=============== ==============
The accompanying notes are an integral part of these financial statements.
3
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
THREE MONTHS NINE MONTHS
---------------------------- ---------------------------
2003 2002 2003 2002
-------------- ------------- ------------ ------------
NET SALES $ 10,119,070 $ 9,484,730 $31,139,830 $ 29,740,717
COST OF SALES 4,529,258 4,396,332 14,183,460 13,848,098
-------------- ------------- ------------ ------------
Gross profit 5,589,812 5,088,398 16,956,370 15,892,619
OPERATING EXPENSES 4,672,820 4,246,873 13,769,241 12,646,486
-------------- ------------- ------------ ------------
INCOME FROM OPERATIONS 916,992 841,525 3,187,129 3,246,133
OTHER INCOME (EXPENSE):
Interest expense (40,735) (54,108) (174,555) (191,419)
Other, net (6,089) (18,578) 68,433 (45,199)
-------------- ------------- ------------ ------------
Total other income (expense) (46,824) (72,686) (106,122) (236,618)
-------------- ------------- ------------ ------------
INCOME BEFORE INCOME TAXES and CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE. 870,168 768,839 3,081,007 3,009,515
PROVISION FOR INCOME TAXES 268,488 234,747 926,105 924,071
-------------- ------------- ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 601,680 534,092 2,154,902 $ 2,085,444
CUMULATIVE EFFECT OF CHANGE IN ACCTG PRINCIPLE, net of income taxes - - - (4,008,831)
-------------- ------------- ------------ ------------
NET INCOME (LOSS) $ 601,680 $ 534,092 $ 2,154,902 $(1,923,387)
============== ============= ============ ============
NET INCOME (LOSS) PER COMMON SHARE - BASIC:
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $0.06 $0.05 $0.21 $ 0.21
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET. . . . . - - - (0.37)
----- ----- ----- -------
NET INCOME (LOSS) PER COMMON SHARE-BASIC . . . . . . . . . . . . $0.06 $0.05 $0.21 $(0.19)
===== ===== ===== =======
NET INCOME (LOSS) PER COMMON SHARE - DILUTED:
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $0.06 $0.05 $0.20 $ 0.19
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET. . . . . - - - (0.37)
----- ----- ----- -------
NET INCOME (LOSS) PER COMMON SHARE-DILUTED. . . . . . . . . . . . $0.06 $0.05 $0.20 $(0.18)
===== ===== ===== =======
The accompanying notes are an integral part of these financial statements.
4
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,154,902 $(1,923,387)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities-
Depreciation & amortization 397,959 370,234
Loss on disposal of assets 9,372 -
Amortization of deferred financing costs - 37,038
Deferred income taxes 59,508 (42,711)
Other 14,960 (3,116)
Cumulative effect of change in accounting principle - 4,008,831
Net changes in assets and liabilities:
Accounts receivable-trade, net (390,808) (102,459)
Inventory 1,074,217 (1,222,308)
Income taxes 2,936 (94,697)
Other current assets (37,153) (343,101)
Accounts payable (162,618) 321,886
Accrued expenses and other liabilities (1,538,342) 244,926
------------ ------------
Total adjustments (569,969) 3,174,523
------------ ------------
Net cash provided by operating activities 1,584,933 1,251,136
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (326,284) (429,250)
Payments in connection with businesses acquired - (227,747)
Proceeds from sale of assets 6,217 -
Increase in other assets (22,305) (415,809)
------------ ------------
Net cash used in investing activities (342,372) (1,072,806)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving credit loans (1,544,417) (601,043)
Payments on notes payable and long-term debt (4,878) (25,905)
Decrease in cash restricted for payment on revolving credit facility 43,685 5,092
Payments received on notes secured by common stock 24,003 26,286
Proceeds from issuance of common stock 325,688 120,300
------------ ------------
Net cash used in financing activities (1,155,919) (475,270)
------------ ------------
NET CHANGE IN CASH 86,642 (296,940)
CASH, beginning of period 101,557 409,040
------------ ------------
CASH, end of period $ 188,199 $ 112,100
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 178,558 $ 157,916
Income taxes paid during the period, net of (refunds) 819,602 1,076,313
The accompanying notes are an integral part of these financial statements.
5
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Common Stock
---------------------------------
Number Par Paid-in Retained
of shares value capital Earnings
-------------- ----------------- -------------- -----------
BALANCE, December 30, 2001 9,991,161 $ 23,979 $ 4,030,508 $ 8,478,187
Payments on notes receivable -
secured by common stock - - - -
Shares issued - warrants and
employee stock options exercised 73,000 175 76,320 -
Net loss - - - (2,457,479)
Translation adjustment - - - -
-------------- ----------------- -------------- -----------
BALANCE, September 30, 2002 10,064,161 $ 24,154 $ 4,106,828 $ 6,020,708
============== ================= ============== ===========
Notes Accumulated
receivable other
- secured by comprehensive Comprehensive
common stock loss Total Income (Loss)
-------------- --------------- --------------- -------------
BALANCE, December 30, 2001 $ (71,939) $ (37,064) $ 12,423,671
Payments on notes receivable -
secured by common stock 24,636 - 24,636
Shares issued - warrants and
employee stock options exercised - - 76,495
Net loss - - (2,457,479) $ (2,457,479)
Translation adjustment - 3,197 3,197 3,197
-------------- --------------- ---------------
BALANCE, September 30, 2002 $ (47,303) $ (33,867) $ 10,070,520
============== =============== ===============
-------------
Comprehensive loss for the nine months ended September 30, 2002 $(2,454,282)
=============
Common Stock
---------------------------------
Number Par Paid-in Retained
of shares value capital Earnings
-------------- ----------------- ------------------ -----------
BALANCE, December 31, 2002 10,149,961 $24,360 $4,163,901 $ 7,064,345
Payments on notes receivable -
secured by common stock - - - -
Shares issued - warrants and
employee stock options exercised 320,500 769 198,537 -
Warrants to acquire 100,000
shares of common stock issued - - 126,381 -
Net income - - - 2,154,902
Translation adjustment - - - -
-------------- ----------------- ------------------ -----------
BALANCE, September 30, 2003 10,470,461 $25,129 $4,488,819 $ 9,219,247
============== ================= ================== ===========
Notes Accumulated
receivable other
- secured by comprehensive Comprehensive
common stock loss Total Income (Loss)
-------------- --------------- --------------- -------------
BALANCE, December 31, 2002 $ (44,003) $ (38,541) $ 11,170,062
Payments on notes receivable -
secured by common stock 24,003 - 24,003
Shares issued - warrants and
employee stock options exercised - - 199,306
Warrants to acquire 100,000
shares of common stock issued - - 126,381
Net income - - 2,154,902 $ 2,154,902
Translation adjustment - 28,739 28,739 28,739
-------------- --------------- ---------------
BALANCE, September 30, 2003 $ (20,000) $ (9,802) $ 13,703,393
============== =============== ===============
------------
Comprehensive income for the nine months ended September 30, 2003 $ 2,183,641
============
The accompanying notes are an integral part of these financial statements.
6
THE LEATHER FACTORY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying consolidated financial statements
for The Leather Factory, Inc. and its consolidated subsidiaries ("TLF") contain
all adjustments necessary to present fairly its financial position as of
September 30, 2003 and December 31, 2002, and its results of operations and cash
flows for the three and nine month periods ended September 30, 2003 and 2002.
Certain reclassifications have been made to prior year amounts in order to
conform to the current year presentation. Operating results for the three and
nine month periods ended September 30, 2003 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2003. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial and accompanying notes included in our Annual Report on
Form 10-K for the year ended December 31, 2002.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement 123, ("SFAS 148"). SFAS 148 amends SFAS No.123, Accounting for
Stock-Based Compensation, ("SFAS 123"), to provide alternative transition
methods for an entity's voluntary change in their accounting for stock-based
compensation from the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB No. 25")
and related interpretations to the fair value method under SFAS 123. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require disclosure of the pro forma effects of using the fair value method of
accounting for stock-based compensation in interim as well as annual financial
statements. The Company currently accounts for its stock-based compensation
using the intrinsic value method as prescribed by APB No. 25. The disclosure
provisions of SFAS No. 148 were adopted on December 31, 2002 and are discussed
in Note 2.
Revenue Recognition
The Company recognizes revenue for over-the-counter sales as transactions occur
and other sales upon shipment of product provided that there are no significant
post-delivery obligations to the customer and collection is reasonably assured,
which generally occurs upon shipment. Net sales represent gross sales less
negotiated price allowances, product returns, and allowances for defective
merchandise.
Inventory
Inventory is stated at the lower of cost or market and is accounted for on the
"first in, first out" method. In addition, the value of inventory is
periodically reduced for slow-moving or obsolete inventory based on management's
review of items on hand compared to their estimated future demand. The
components of inventory consist of the following as of:
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------------- -------------
Finished goods held for sale $ 10,457,893 $ 11,693,868
Raw materials and work in process 1,163,234 1,001,476
-------------- -------------
$ 11,621,127 $ 12,695,344
============== =============
7
Goodwill and Other Intangibles
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets," prescribes a two-phase process for impairment testing
of goodwill, which is performed once annually, absent indicators of impairment.
The first phase screens for impairment, while the second phase (if necessary)
measures the impairment. As a result of SFAS 142, we incurred an impairment
write-down in the first quarter of 2002 of our investment in our subsidiary,
Roberts, Cushman & Company, Inc., in the amount of $4.0 million. The remaining
goodwill on our balance sheet is analyzed by management periodically to
determine the appropriateness of its carrying value. We have elected to perform
our annual analysis during the fourth calendar quarter of each year. As of
December 31, 2002, management determined that the present value of the
discounted estimated future cash flows of the stores associated with the
goodwill is sufficient to support their respective goodwill balances. No
indicators of impairment were identified during the first nine months of 2003.
Other intangibles consist of the following:
AS OF SEPTEMBER 30, 2003 AS OF DECEMBER 31, 2002
------------------------------------- ---------------------------------
----------- -------------- -------- -------- ------------- --------
ACCUMULATED ACCUMULATED
GROSS AMORTIZATION NET GROSS AMORTIZATION NET
----------- -------------- -------- -------- ------------ --------
Trademarks, Copyrights $ 544,369 $ 129,247 $415,122 $544,369 $ 102,029 $442,340
Non-Compete Agreements 52,000 21,833 30,167 52,000 10,833 41,167
----------- -------------- -------- -------- ------------- --------
$ 596,369 $ 151,080 $445,289 $596,369 $ 112,862 $483,507
=========== ============== ======== ======== ============= ========
The Company recorded amortization expense of $39,161 during the first nine
months of 2003 compared to $35,401 during the first nine months of 2002. The
Company has no intangible assets not subject to amortization under SFAS 142.
Based on the current amount of intangible assets subject to amortization, the
estimated amortization expense for each of the succeeding 5 years are as
follows:
ROBERTS
LEATHER FACTORY. TANDY LEATHER CUSHMAN TOTAL
---------------- -------------- -------- -------
2003 $ 5,918 $ 45,004 $ 0 $50,922
2004 5,918 45,004 0 50,922
2005 5,918 35,004 0 40,922
2006 5,918 34,337 0 40,255
2007 5,918 33,504 0 39,422
2. STOCK-BASED COMPENSATION
The Company accounts for stock options granted to its directors and employees
using the intrinsic value method prescribed by APB No. 25 which requires
compensation expense be recognized for stock options when the quoted market
price of the Company's common stock on the date of grant exceeds the option's
exercise price. No compensation cost has been reflected in net income for the
granting of director and employee stock options as all options granted had an
exercise price equal to the quoted market price of the Company's common stock on
the date the options were granted. Had compensation cost for the Company's
stock options been determined consistent with the SFAS 123 fair value approach,
the Company's net income and net income per common share for the three and nine
months ended September 30, 2003 and 2002, on a pro forma basis, would have been
as follows:
THREE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
------------------- ------------------
Net income (loss), as reported $ 601,680 $ 534,092
Add: Stock-based compensation expense included in reported net income (loss) - -
Deduct: Stock-based compensation expense determined under fair value method 24,546 25,905
------------------- ------------------
Net income (loss), pro forma $ 577,134 $ 508,187
Net income (loss) per share:
Basic - as reported $ 0.06 $ 0.05
Basic - pro forma $ 0.06 $ 0.05
Diluted - as reported $ 0.06 $ 0.05
Diluted - pro forma 0.05 $ 0.05
NINE MONTHS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
------------------- -------------------
Net income (loss), as reported $ 2,154,902 $ (1,923,387)
Add: Stock-based compensation expense included in reported net income (loss) - -
Deduct: Stock-based compensation expense determined under fair value method 73,639 77,714
------------------- ------------------
Net income (loss), pro forma $ 2,081,263 $ (2,001,101)
Net income (loss) per share:
Basic - as reported $ 0.21 $ (0.19)
Basic - pro forma $ 0.20 $ (0.20)
Diluted - as reported $ 0.20 $ (0.18)
Diluted - pro forma $ 0.19 $ (0.19)
The fair values of stock options granted were estimated on the dates of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 3.125% for 2003 and 3.00% for 2002;
dividend yields of 0% for both periods; volatility factors of .706 for 2003 and
..736 for 2002; and an expected life of the valued options of 4 years.
8
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share ("EPS"):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -------------------------
2003 2002 2003 2002
-------------- ------------- ----------- ------------
Numerator:
Net income (loss) $ 601,680 $ 534,092 $ 2,154,902 $(1,923,387)
-------------- ------------- ----------- ------------
Numerator for basic and diluted earnings per share 601,680 534,092 2,154,902 (1,923,387)
Denominator:
Weighted-average shares outstanding-basic 10,394,374 10,064,249 10,269,415 10,035,890
Effect of dilutive securities:
Stock options 422,000 448,836 425,818 483,760
Warrants 86,420 210,318 145,531 240,027
-------------- ------------- ----------- ------------
Dilutive potential common shares 508,420 659,154 571,349 723,787
-------------- ------------- ----------- ------------
Denominator for diluted earnings per share-
weighted-average shares 10,902,794 10,723,403 10,840,764 10,759,677
============== ============= =========== ==========
Basic earnings (loss) per share $ 0.06 $ 0.05 $ 0.21 $ (0.19)
============== ============= =========== ==========
Diluted earnings (loss) per share $ 0.06 $ 0.05 $ 0.20 $ (0.18)
============== ============= =========== ==========
The net effect of converting stock options to purchase 924,700 and 1,081,000
shares of common stock at option prices less than the average market prices has
been included in the computations of diluted EPS for the three and nine months
ended September 30, 2003 and 2002, respectively.
4. SEGMENT INFORMATION
The Company identifies its segments based on the activities of three distinct
businesses:
a. The Leather Factory, which sells primarily to wholesale customers through
a chain of 30 outlet stores located in the United States and Canada;
b. Tandy Leather Company, which sells primarily to retail customers through
a chain of retail stores located in the United States; and
c. Roberts, Cushman & Company, manufacturer of decorative hat trims sold
directly to hat manufacturers and distributors.
The Company's reportable operating segments have been determined as separately
identifiable business units. The Company measures segment earnings as operating
earnings, defined as income before interest and income taxes.
ROBERTS,
LEATHER FACTORY TANDY LEATHER CUSHMAN TOTAL
----------------- -------------- ---------- -----------
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
Net sales $ 7,372,159 $ 2,334,127 $ 412,784 $10,119,070
Gross profit 3,996,866 1,475,312 117,634 5,589,812
Operating earnings 784,322 117,514 15,156 916,992
Interest expense (40,735) - - (40,735)
Other, net (6,315) 226 - (6,089)
------------
Income before income taxes 737,272 117,740 15,156 870,168
------------
Depreciation and amortization 99,489 20,978 2,365 122,832
Fixed asset additions 33,230 21,300 1,377 55,907
Total assets $ 15,300,407 $ 2,802,218 $ 904,582 $19,007,207
----------------- -------------- ---------- -----------
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
Net sales 7,244,610 1,727,925 512,195 $ 9,484,730
Gross profit 3,848,893 1,026,681 212,824 5,088,398
Operating earnings 631,125 76,231 134,169 841,525
Interest expense (53,995) (113) - (54,108)
Other, net (18,578) - - (18,578)
------------
Income before income taxes 558,552 76,118 134,169 768,839
------------
Depreciation and amortization 94,369 29,612 3,399 127,380
Fixed asset additions 139,454 55,050 1,936 196,440
Total assets $ 14,528,938 $ 2,241,064 $ 921,378 $17,691,380
----------------- -------------- ---------- -----------
9
ROBERTS,
LEATHER FACTORY TANDY LEATHER CUSHMAN TOTAL
----------------- -------------- ---------- -----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
Net sales $ 23,375,158 $ 6,312,145 $1,452,527 $31,139,830
Gross profit 12,477,180 3,981,715 497,475 16,956,370
Operating earnings 2,626,394 430,737 129,998 3,187,129
Interest expense (174,555) - - (174,555)
Other, net 68,064 369 - 68,433
------------
Income before income taxes 2,519,903 431,106 129,998 3,081,007
------------
Depreciation and amortization 335,184 55,064 7,711 397,959
Fixed asset additions 201,862 122,189 2,233 326,284
Total assets $ 15,300,407 $ 2,802,218 $ 904,582 $19,007,207
----------------- -------------- ---------- -----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
Net sales $ 22,769,549 $ 5,420,108 $1,551,060 $29,740,717
Gross profit 12,151,507 3,179,498 561,614 15,892,619
Operating earnings 2,625,651 315,268 305,214 3,246,133
Interest expense (190,903) (516) - (191,419)
Other, net (44,566) (633) - (45,199)
------------
Income before income taxes 2,390,182 314,119 305,214 3,009,515
------------
Depreciation and amortization 279,033 81,256 9,945 370,234
Fixed asset additions 267,823 157,953 3,474 429,250
Total assets $ 14,528,938 $ 2,241,064 $ 921,378 $17,691,380
----------------- -------------- ---------- -----------
Net sales for geographic areas were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
--------------- -------------- ----------- -----------
United States $ 9,456,440 $ 8,941,654 $29,038,861 $28,052,774
All other countries 662,630 543,076 2,100,969 1,687,943
--------------- -------------- ----------- -----------
$ 10,119,070 $ 9,484,730 $31,139,830 $29,740,717
=============== ============== =========== ===========
Geographic sales information is based on the location of the customer. Net
sales from no single foreign country was material to the Company's consolidated
net sales for the three and nine month periods ended September 30, 2003 and
2002. The Company does not have any significant long-lived assets outside of
the United States.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Leather Factory, Inc. ("TLF" or the "Company") is a Delaware corporation
whose common stock trades on the American Stock Exchange under the symbol "TLF".
The Company is managed on a business entity basis, with those businesses being
The Leather Factory ("Leather Factory"), Tandy Leather Company ("Tandy" or
"Tandy Leather"), and Roberts, Cushman & Company, Inc. ("Cushman"). See Note 4
to the Consolidated Financial Statements for additional information concerning
the Company's segments, as well as its foreign operations.
Leather Factory, founded in 1980 by Wray Thompson and Ron Morgan, distributes
leather and related products, including leatherworking tools, buckles and
adornments for belts, leather dyes and finishes, saddle and tack hardware, and
do-it-yourself kits. The products are sold primarily through 30 company-owned
outlets located throughout the United States and Canada.
Tandy Leather is the best-known supplier of leather and related supplies used in
the leathercraft industry. From its founding in 1919, Tandy has been the
primary leathercraft resource world wide. Products include quality tools,
leather, accessories, kits and teaching materials. In early 2002, we initiated
a plan to expand Tandy by opening retail stores. As of October 31, 2003, we
have opened 26 Tandy Leather retail stores located throughout the United States.
Cushman, whose origins date back to the mid-1800's, custom designs and
manufactures a product line of decorative hat trims for headwear manufacturers.
CRITICAL ACCOUNTING POLICIES
A description of the Company's critical accounting policies appears in "Item 2.
Management's Discussions and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.
RESULTS OF OPERATIONS
- -----------------------
The following tables present selected financial data of each of the Company's
three segments for the quarters and nine months ended September 30, 2003 and
2002:
QUARTER ENDED SEPTEMBER 30, 2003 QUARTER ENDED SEPTEMBER 30, 2002
-------------------------------- --------------------------------
OPERATING OPERATING
SALES INCOME SALES INCOME
--------------- ------------- --------------- -------------
Leather Factory $ 7,372,159 $ 784,322 $ 7,244,610 $ 631,125
Tandy 2,334,127 117,514 1,727,925 76,231
Cushman 412,784 15,156 512,195 134,169
--------------- ------------- --------------- -------------
Total Operations $ 10,119,070 $ 916,992 $ 9,484,730 $ 841,525
=============== ============= =============== =============
NINE MONTHS ENDED SEPTEMBER 30, 2003 NINE MONTHS ENDED SEPTEMBER 30, 2002
------------------------------------ ------------------------------------
OPERATING OPERATING
SALES INCOME SALES INCOME
--------------- ------------- --------------- -------------
Leather Factory $ 23,375,158 $ 784,322 $ 7,244,61022,769,549 $ 631,1252,625,651
Tandy 6,312,145 117,514 1,727,925 76,2315,420,108 315,268
Cushman 1,452,527 15,156 512,195 134,1691,551,060 305,214
---------------- ------------- --------------- -------------
Total Operations $ 31,139,830 $ 916,992 $ 9,484,73029,740,717 $ 841,5253,246,133
================ ============= =============== =============
11
Consolidated net sales for the quarter ended September 30, 2003 increased
$634,000, or 6.7%, compared to the same period in 2002. Leather Factory's sales
increase was $127,000; Tandy contributed $606,000 while Cushman recorded a sales
reduction of $99,000. Operating income on a consolidated basis for the quarter
ended September 30, 2003 increased 9.0% or $75,000 over the third quarter of
2002.
Total consolidated net sales for the nine months ended September 30, 2003
increased $1.4 million, or 4.7%, compared to the same period in 2002. Leather
Factory contributed $606,000 of the sales gain while Tandy added $892,000.
Cushman's 2003 sales were down $98,000 compared to a year ago. Operating income
on a consolidated basis for the nine months ended September 30, 2003 was down
1.8% or $59,000 over last year.
The following table shows in comparative form our consolidated net income (loss)
for the third quarters of 2003 and 2002 and the first nine months of the two
years, both before and after the cumulative effect of a previously reporting
change in accounting principle in 2002:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002 % CHANGE
Income before cumulative effect of change in accounting principle $601,680 $534,092 12.6%
Cumulative effect of change in accounting principle* - - -
-------- -------- ---------
Net income (loss) $601,680 $534,092 12.6%
======== ======== =========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002 % CHANGE
Income before cumulative effect of change in accounting principle $2,154,902 $ 2,085,444 3.3%
Cumulative effect of change in accounting principle* - (4,008,831) -
---------- ------------ ---------
Net income (loss) $2,154,902 $(1,923,387) N/A
========== ============ =========
_____________
*The amount shown for the cumulative effect of change in accounting principle is net of income taxes.
The relatively large increase in income before the effects of the accounting
change for the third quarter (12.6%) as compared to this measure for the
comparable nine-month periods of 2002 (3.3%) is attributable to continued growth
in sales from the Tandy Leather stores.
12
LEATHER FACTORY OPERATIONS
Net sales from Leather Factory's 30 warehouse distribution centers increased
1.76%, or $127,000, for the third quarter of 2003. The following table presents
TLF's sales mix by customer categories for the quarters ended September 30, 2003
and 2002:
QUARTER ENDED
CUSTOMER GROUP 09/30/03 09/30/02
- ------------------------------------------------------------------------------------- -------------- ---------
RETAIL (end users, consumers, individuals) 22% 18%
INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.) 7 7
WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) 45 45
NATIONAL ACCOUNTS 20 23
MANUFACTURERS 6 7
-------------- ---------
100% 100%
============== =========
We have re-categorized our customer groups for the purpose of reporting our
sales mix as we believe this revised presentation is more meaningful to the
reader. The following table provides the sales mix in the modified categories
for the first two quarters of 2003 and 2002 for comparison purposes:
QUARTER ENDED QUARTER ENDED
CUSTOMER GROUP 03/31/03 03/31/02 06/30/03 06/30/02
- ------------------- -------------- -------------- --------- ---------
RETAIL 23% 21% 19% 18%
INSTITUTION 8 9 10 10
WHOLESALE 42 43 39 45
NATIONAL ACCOUNTS 21 23 24 21
MANUFACTURERS 6 4 8 6
-------------- -------------- --------- ---------
100% 100% 100% 100%
============== ============== ========= =========
The majority of Leather Factory's sales gain was with our retail customers. The
other customer groups achieved very modest gains, with the exception of our
national accounts. Several of the customers in this group are re-setting their
programs with us during the last half of this year. This is a normal part of
doing business with these customers and occurs every two to four years,
depending on the agreements negotiated with the customer. Simply stated, these
customers determine what products they intend to purchase from us for the next
several years and what products they intend to discontinue carrying in their
product lines. Although they often continue to order these "to-be-discontinued"
products until the new program is in place (which is to occur in January 2004),
we intentionally begin decreasing our inventory of these items in order to
eliminate these products in their entirety by the end of the year. As a result,
our sales to these customers decrease during this time as we intentionally do
not have all of the product they are attempting to purchase as they wind-down
the year. We believe that these intentional reductions in product availability
and sales to these customers are temporary and will not have a long-term effect
on Leather Factory's total sales.
Operating income for Leather Factory increased $153,000 for the current quarter
compared to 2002. Operating expenses as a percentage of sales in the third
quarter of 2003 were 43.58%, down from 44.4% a year ago. Advertising and
marketing costs continue to be a significant expense; however, we believe these
efforts are pivotal to the success of the operation. We have been successful in
reducing discretionary expenses in some areas such as temporary personnel,
property maintenance, and miscellaneous supplies, and will continue to look for
ways to cut administrative costs without jeopardizing operations.
13
TANDY LEATHER OPERATIONS
Net sales for Tandy, which consisted of twenty-six retail stores as of September
30, 2003, were up 35.1% for the third quarter of 2003 over the same quarter last
year, which consisted of ten retail stores, as follows:
QTR ENDED QTR ENDED $ INCR % INCR
09/30/03 09/30/02 (DECR) (DECR)
---------- ---------- ----------- -------
Same store sales (10 stores) $1,133,337 $1,121,736 $ 11,601 1.03%
New store sales (16 stores) 1,198,246 - 1,198,246 -
Centralized mail order facility (closed 09/01/02) 2,544 606,189 (603,645) (99.58)
---------- ---------- ----------- -------
Total sales $2,334,127 $1,727,925 $ 606,202 35.08%
========== ========== ========== =======
The ten "same" stores are those that were opened August 2002 or earlier.
Sales in the current quarter were generally in line with our internal
expectations. The third quarter of the year is generally the weakest quarter
for sales. Average sales per month in the stores that have been open for at
least three months through September 30, 2003 was approximately $35,000 which is
still ahead of our internal goal of $30,000 per month per store. The stores
that were opened in 2002 are averaging monthly sales over $38,000 per store.
The following table presents Tandy's sales mix by customer categories for the
quarters ended September 30, 2003 and 2002. Tandy's customer groups have been
re-grouped consistent with the categories for Leather Factory discussed above.
QUARTER ENDED
CUSTOMER GROUP 09/30/03 09/30/02
- --------------- -------------- ---------
RETAIL 72% 62%
INSTITUTION 7 12
WHOLESALE 20 25
MANUFACTURERS 1 1
-------------- ---------
100% 100%
============== =========
The following table provides the sales mix in the modified categories for the
first two quarters of 2003 and 2002 for comparison purposes:
QUARTER ENDED QUARTER ENDED
CUSTOMER GROUP 03/31/03 03/31/02 06/30/03 06/30/02
- --------------- -------------- -------------- --------- ---------
RETAIL 72% 61% 67% 57%
INSTITUTION 4 12 10 17
WHOLESALE 23 27 23 26
MANUFACTURERS 1 0 0 0
-------------- -------------- --------- ---------
100% 100% 100% 100%
============== ============== ========= =========
Third quarter operating income for Tandy increased $41,000 or 54% over operating
income in last year's third quarter. Gross profit margins improved from 59.4%
to 63.2% for the quarter due to the continued increase in retail sales versus
other sales categories. Operating expenses were 58.2% of sales in the current
quarter compared to 55.0% in the same quarter last year. The 3.2% increase
arose from $70,000 of additional expenses. The four new stores opened in August
2003 accounted for $50,000 of the increase, as management's policy is to expense
the stores' set-up and openings costs in the first month a store is open.
14
ROBERTS, CUSHMAN OPERATIONS
Net sales for Cushman decreased $99,000 for the third quarter of 2003 over the
third quarter of 2002. Operating income for Cushman decreased $119,000. The
decrease in sales and operating income is the result of the continued demand for
less expensive hats (straw vs. felt) and therefore less expensive hatbands
(ribbon or felt vs. leather). Overall hat sales appear to be down throughout
the industry. Several of Cushman's hat manufacturing customers are on short
work weeks (3 or 4 days as compared to the usual 5 or 6 days).
Because Cushman's operation is not material to our company and it does not fit
in our specialty retail business model on a long-term basis, we are currently
analyzing the proper direction to take with respect to this subsidiary.
OTHER EXPENSES
Interest expense of $40,735 in the third quarter of 2003 decreased from $54,108
in the third quarter of 2002. The decrease was attributable to an decrease in
the average debt balance and the reduction in the interest rate during the
current period as compared to a year ago. The interest rate during 2002 was
4.75%. The interest rate throughout during 2003 has ranged from 4.25% to 4.00%.
The average debt balance for the first nine months of 2003 was $3.4 million
compared to $4.2 million for the first nine months of 2002.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------------------------------
There was a slight decrease (3.4%) in our consolidated total assets from
December 31, 2002 to September 30, 2003. Total assets decreased from $19.7
million at year-end to $19.0 million at September 30. The reduction in
inventory of $1.0 million, partially offset by an increase in accounts
receivable of $400,000, accounted for the majority of the decrease. Total
stockholders' equity increased from $11.2 million at December 31, 2002 to $13.7
million at September 30, 2003. The increase in equity is attributable to the
earnings in the first nine months of the year. Also, during the first nine
months of 2003, we reduced the outstanding principal balance of our revolving
credit line by $1.5 million.
Inventory decreased $1.0 million at September 30, 2003 from year-end 2002.
Inventory turnover decreased to an annualized rate of 3.41 times during the
first nine months of 2003, a slowdown from 4.08 times for the first nine months
of 2002 and 3.65 times for all of 2002. The slowdown in turns is still due
primarily to the high inventory balance at the end of 2002 discussed in earlier
reports. We compute our inventory turns as sales divided by average inventory.
Leather Factory stores are holding an average inventory of approximately $90,000
per store which is on target with expected levels. Tandy stores are averaging
approximately $50,000 of inventory per store - which is also in line with
management's target of $50,000 or less.
Trade accounts receivable was $2.3 million at September 30, 2003, up $390,000
from $1.9 million at year-end 2002, reflecting an overall increase in sales and
the effect of the timing of orders shipped to some of our larger accounts
towards the end of the third quarter of 2003 compared to the end of the fourth
quarter of 2002. Consolidated average days to collect accounts improved
slightly over the first three-fourths of 2002 from 42.4 days to 41.0 days.
Leather Factory posted the most improvement in average days to collect accounts,
from 41.4 days to 37.4 days. Tandy and Cushman days outstanding increased in
the first nine months of 2003 compared to 2002, from 23.55 and 64.82 days in
2002 to 39.23 and 72.25 days in 2003, respectively. Tandy's days outstanding
has improved from the second quarter of 2003 by approximately five days while
Cushman's days outstanding has increased by approximately four days from June
30, 2003.
Total accounts payable decreased $163,000 to $1.4 million at the end of the
third quarter. Accrued expenses and other liabilities decreased $1.5 million,
from $2.5 million at December 31, 2002 to $964,000 at September 30, 2003. The
reduction is due to the decrease of accrued inventory in transit of $1.0 million
between December 31 and September 30 as well as the change in the balance of
accrued managers' bonuses. Bonuses are accrued throughout the year based on the
operating profits of each stores and then paid annually in March. Accrued
bonuses at December 31, 2002 totaled $930,000, which represents bonuses earned
based on the stores' twelve months of operating profits, compared to that at
September 30, 2003 totaling $435,000, which represents bonuses earned on the
stores' nine months of operating profits. The Company applied its cash flow
from operating activities to reduce the notes payable and current maturities of
long-term debt decreased from $4.2 million at the end of 2002 to $2.7 million at
September 30, 2003.
15
The Company's current ratio rose from 1.94 at December 31, 2002 to 3.07 at
September 30, 2003. Generally accepted accounting principles ("GAAP") require
the Company's debt with Wells Fargo Bank Minnesota, N.A. ("Wells Fargo") to be
classified as short-term (even though the stated maturity is in November 2004)
because our credit agreement with Wells Fargo includes both a subjective
acceleration clause and a requirement to maintain an arrangement whereby cash
collections from our customers directly reduce the debt outstanding (Emerging
Issues Task Force Issue 95-22).
If GAAP permitted this loan to be report as long-term indebtedness, the
Company's current ratio at September 30, 2003 would have been 6.48. The
following table reconciles this non-GAAP disclosure to the presentation required
by GAAP:
AS OF SEPTEMBER 30, 2003
------------------------
GAAP PRESENTATION NON-GAAP PRESENTATION
------------------ -----------------------
Current Assets $ 15,559,074 $ 15,559,074
Current Liabilities 5,069,209 5,069,209
Less Wells Fargo debt maturing after September 30, 2004 N/A (2,669,116)
Adjusted Current Liabilities 5,069,209 2,400,093
Current Ratio (Current Assets/Current Liabilities (or as adjusted) 3.07 6.48
After the close of the third quarter of 2003, the Company refinanced its bank
debt with another Wells Fargo bank. Under the terms of the refinancing, the
Company's bank debt with maturities beyond 12 months will no longer be
classified as a current liability under GAAP. In light of this change,
management believes that the non-GAAP presentation above will facilitate
comparisons of the current ratios at the end of the third quarter of 2003 and at
year-end. Management has used this non-GAAP measure in comparing the Company to
other companies whose funded debt is recorded as long-term liabilities under
GAAP.
During the first nine months of 2003, cash flow provided from operating
activities was $1.6 million, up from $1.3 million for the first nine months of
2002. The increase in 2003 was attributable to several factors that occurred
during the first nine months of this year: (1) the reduction of inventory, and
(2) the net income generated, partially offset by the payment of manager bonuses
in the first quarter of 2003. Cash flows used in investing activities totaled
$342,000, $326,000 of which was for capital expenditures. Most of the purchases
were for the new Tandy stores opened as well as replacements and upgrades of
existing computer equipment as needed. Cash flows used for financing activities
was $1.2 million, representing our net payments on our revolving credit facility
for the year of $1.5 million, partially offset by cash received from employees
on exercises of stock options.
The principal requirements for our liquidity needs are operational expenses and
our expansion of Tandy's retail store chain. We anticipate that the Company
will fund these requirements from a combination of current cash balances,
revenues from operations and our revolving credit facility with Wells Fargo.
The amount available on this credit facility is based upon the level of our
accounts receivable and inventory. At September 30, 2003, the available and
unused portion of the credit facility was approximately $4.0 million.
16
FORWARD-LOOKING STATEMENTS
- ---------------------------
This report (particularly Items 2, 3 and 4 of this Part I) contains
forward-looking statements of management. In general, these are predictions or
suggestions of future events and statements or expectations of future trends or
occurrences. There are certain important risks that could cause results to
differ materially from those anticipated by some of the forward-looking
statements. Some, but not all, of the important risks which could cause actual
results to differ materially from those suggested by the forward-looking
statements include, among other things:
- - Continued involvement by the United States in military and other
operations in the Middle East and other areas abroad could disrupt international
trade and affect the Company's inventory sources.
- - The recent slump in the economy in the United States, as well as abroad,
may cause our sales to decrease or not to increase or adversely affect the
prices charged for our products. Also, hostilities, terrorism or other events
could worsen this condition.
- - Several of our wholesale customers are conducting a periodic review of the
products they purchase from us. If these reviews were to have an overall
reduction in the volume of products purchased from us, our total sales could be
affected.
- - As a result of the on-going threat of terrorist attacks on the United
States, consumer buying habits could change and decrease our sales.
- - The prices of hides and leathers also fluctuate in normal times, and these
fluctuations can affect the Company.
- - If, for whatever reason, the costs of our raw materials and inventory
increase, we may not be able to pass those costs on to our customers,
particularly if the economy has not recovered from its downturn.
- - Other factors could cause either fluctuations in buying patterns or
possible negative trends in the craft and western retail markets. In addition,
our customers may change their preferences to products other than ours, or they
may not accept new products as we introduce them.
- - We might fail to realize the anticipated benefits of opening of additional
Tandy Leather retail stores or other retail initiatives might not be successful.
- - Tax or interest rates might increase. In particular, interest rates are
likely to increase at some point from their present low levels. These increases
will increase our costs of borrowing funds as needed in our business.
- - Any change in the commercial banking environment may affect us and our
ability to borrow capital as needed.
- - Other uncertainties, which are difficult to predict and many of which are
beyond the control of the Company, may occur as well.
The Company does not intend to update forward-looking statements.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For disclosures about market risk affecting the Company, see Item 7A
"Quantitative and Qualitative Disclosures About Market Risk" in our Annual
Report on Form 10-K for our fiscal year ended December 31, 2002. The Company
believes that its exposure to market risks has not changed significantly since
December 31, 2002.
PART II. OTHER INFORMATION
ITEM 4. CONTROLS AND PROCEDURES
At the end of the third quarter of 2003, our President, Chief Executive Officer
and Chief Financial Officer evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Based upon this evaluation, they concluded that, subject to the limitations
described below, the Company's disclosure controls and procedures offer
reasonable assurance that the information required to be disclosed by the
Company in the reports it files under the Exchange Act is recorded, processed,
summarized,, and reported within the time periods specified in the rules and
forms adopted by the Securities and Exchange Commission.
During the period covered by this report, there has been no significant change
in the Company's internal controls over financial reporting that materially
affected, or is reasonably likely to materially affect, these controls.
Limitations on the Effectiveness of Controls. Our management, including the
President, Chief Executive Officer and Chief Financial Officer, does not expect
that the Company's disclosure controls and procedures will prevent all error and
all fraud. A well conceived and operated control system is based in part upon
certain assumptions about the likelihood of future events and can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
EXHIBIT
NUMBER EXHIBIT
- ------- -----------------------------------------------------------------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
----------------------
On July 23, 2003, the Company filed a report on Form 8-K in which we furnished
under Item 9 the press release entitled "The Leather Factory Reports 2nd Quarter
2003 Results" relating to the result of our second quarter ended June 30, 2003.
This report was dated July 22, 2003.
On August 21, 2003, the Company filed a report on Form 8-K in which we furnished
under Item 4 details regarding a change in independent auditors for 2003. This
report was dated August 18, 2003.
18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LEATHER FACTORY, INC.
(Registrant)
Date: November 7,10, 2003 By: /s/ Wray Thompson
-------------------
Wray Thompson
Chairman of the Board and
Chief Executive Officer
Date: November 7,10, 2003 By: /s/ Shannon L. Greene
------------------------
Shannon L. Greene
Chief Financial Officer and
Treasurer (Chief Accounting Officer)
19
EXHIBIT 31.1
CERTIFICATION
I, Wray Thompson, certify that:
1. I have reviewed this quarterly report on Form 10-Q10-Q/A, Amendment No. 1, of
The Leather Factory, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonable likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
November 7,10, 2003
/s/ Wray Thompson
-------------------
Wray Thompson
Chairman and Chief Executive Officer
20
EXHIBIT 31.2
- -------------
CERTIFICATION
I, Shannon L. Greene, certify that:
1. I have reviewed this quarterly report on Form 10-Q10-Q/A, Amendment No. 1, of
The Leather Factory, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonable likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
November 7,10, 2003
/s/ Shannon L. Greene
------------------------
Shannon L. Greene
Chief Financial Officer and Treasurer
21
EXHIBIT 32
- -----------
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q10-Q/A, Amendment No. 1, of The
Leather Factory, Inc. for the quarter ended September 30, 2003 as filed with the
United States Securities and Exchange Commission on the date hereof (the
"Report"), Wray Thompson, as Chairman and Chief Executive Officer, and Shannon
L. Greene, as Treasurer and Chief Financial Officer, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
i. The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
ii. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
November 7,10, 2003 /s/ Wray Thompson
-------------------
WRAY THOMPSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
November 7,10, 2003 /s/ Shannon L. Greene
-----------------------
SHANNON L. GREENE
CHIEF FINANCIAL OFFICER AND TREASURER