-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/PCzAlpszS6xYN0PhOafoslM/LJNhL2Q1FarxjfwUlDrh1XxHh1qlh0h47Civpc Kd88U5he2+wUcX4I/YxGJg== 0000950134-99-008444.txt : 19990927 0000950134-99-008444.hdr.sgml : 19990927 ACCESSION NUMBER: 0000950134-99-008444 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990924 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANDY BRANDS ACCESSORIES INC CENTRAL INDEX KEY: 0000869487 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 752349915 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-18927 FILM NUMBER: 99716377 BUSINESS ADDRESS: STREET 1: 690 E LAMAR BLVD STE 200 CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8175480090 MAIL ADDRESS: STREET 1: 690 E LAMAR BLVD CITY: ARLINGTON STATE: TX ZIP: 76011 10-K405 1 FORM 10-K FOR FISCAL YEAR END JUNE 30, 1999 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999 COMMISSION FILE NUMBER 0-18927 TANDY BRANDS ACCESSORIES, INC. (Exact name of Registrant as Specified in its Charter) A DELAWARE CORPORATION 75-2349915 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
690 E. LAMAR BLVD., SUITE 200 ARLINGTON, TEXAS, 76011 (Address of Principal Executive Offices) (Registrant's Telephone Number, Including Area Code) (817) 548-0090 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS Common Stock, Par Value $1 per Share 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing price of such stock as reported on September 16, 1999, through the National Market System of the National Association of Securities Dealers Automated Quotation System) was approximately $60,538,000. There were 5,785,560 shares of common stock, $1.00 par value per share, outstanding at September 16, 1999. DOCUMENTS INCORPORATED BY REFERENCE: (a) Annual Report to Stockholders for Fiscal Year Ended June 30, 1999 (incorporated by reference in Parts II and IV). (b) Definitive Proxy Statement for the Annual Meeting to be held October 19, 1999 (incorporated by reference in Part III). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. 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), Don Loper(R), Accessory Design Group(R) and Tiger(R), as well as private brands for major retail customers. Proprietary brands, licensed brands and private brands accounted for approximately 42.8%, 11.3% and 45.9%, respectively, of net sales during fiscal 1999. 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 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 $3.5 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 Company seeks increased accessory sales and earnings through a variety of means, including increased sales through the Company's current operating units, as well as growth through the acquisition of similar businesses. The following chart summarizes the Company's acquisitions:
NAME OF BUSINESS DATE ACQUIRED OR ASSETS ACQUIRED PRODUCT LINES BRANDS ACQUIRED - ------------- ----------------------- ---------------------- ---------------------- May 1, 1992.......... Accessory Design Group Women's accessories Accessory Design Group and Belts June 1, 1993......... Durite Leather Goods Women's apparel and Various private brands Accessories November 29, 1993.... Accolade, Inc Men's and boys' belts Always In Style(1) and Accessories April 4, 1994........ Certain assets of Men's and women's Prince Gardner Prince Gardner small leather goods Princess Gardner Incorporated Royalle by Prince Royalle by Princess Gardner August 30, 1994...... H.A. Sheldon, Inc Men's belts, wallets Various private brands and Suspenders May 1, 1995.......... Canterbury Belts, Ltd Men's, women's and Canterbury children's leather and fabric accessories May 12, 1998......... Certain assets of AR Men's and women's Amity Rolfs Accessories Group, Inc. small leather goods June 1, 1998......... Tiger Accessories, Inc Men's and boys' belts Tiger July 16, 1999........ Frank Spielberg Sales, Handbags Coletta, Decca & Tempo LLC
- --------------- (1) On March 27, 1995 the Company announced its decision to discontinue its Always In Style operations. 2 3 The Company distributes its products to nearly every type and size of retail operation. Management estimates that the Company's customers include over 10,000 retailers representing over 20,000 retail locations. The Company's key brands and each brand's targeted distribution channels and products are as follows:
BRAND DISTRIBUTION CHANNEL PRODUCTS - ----- --------------------- ------------------- Jones New York............................. Department stores Handbags Specialty stores Small leather goods Florsheim.................................. Department stores Belts Specialty stores Small leather goods Rolfs...................................... Department stores Small leather goods Specialty stores Haggar..................................... National chain stores Belts Department stores Small leather goods Catalogs Bugle Boy.................................. National chain stores Belts Department stores Small leather goods Canterbury................................. Specialty stores Belts Golf pro shops Small leather goods Prince Gardner............................. National chain stores Small leather goods Specialty stores Princess Gardner........................... National chain stores Small leather goods Specialty stores Amity...................................... Mass merchants Small leather goods National chain stores Coletta.................................... Mass merchants Handbags National chain stores Accessory Design Group..................... Mass merchants Belts National chain stores Women's accessories Tiger...................................... Mass merchants Belts National chain stores
The accessories market is highly fragmented, and management believes that the Company is one of the largest competitors in the accessories industry. Management believes the sectors of the accessories market that the Company serves have grown at an average annual rate of three to five percent in recent years. This growth has resulted from (i) the trend toward more casual attire, which has increased demand for accessories outside the traditional dress category, (ii) increased consumer awareness of branded accessories as a fashion and lifestyle statement and (iii) a desire for newness and change in accessories styles. As a result of recent consolidation in the retail industry, retailers have increasingly chosen to consolidate their supply bases to a core group of companies that have the resources and expertise to meet the retailers' increasing demands. Over the past several years, the Company's net sales growth has exceeded that of the accessories industry and the Company believes it is better positioned than its competitors to continue to capitalize on these market trends. PRODUCTS The Company's primary products are belts and small leather goods, such as wallets, which accounted for approximately 50.3% and 31.5%, respectively, of the Company's net sales for fiscal 1999. The Company's other products include women's handbags, socks, scarves, hats, hair accessories and men's neckwear, suspenders and other fashion accessories, which collectively accounted for the remaining 18.2% of net sales in fiscal 1999. Men's and boys' products accounted for approximately 59.4% of net sales during fiscal 1999, and women's and girls' products accounted for approximately 40.6% of net sales during the same period. Proprietary brands, licensed brands and private brands accounted for approximately 42.8%, 11.3% and 45.9%, respectively, of net sales during fiscal 1999. 3 4 Belts The Company and its predecessors have been manufacturing and marketing belts for over 70 years, and belts remain the Company's largest single product category, representing approximately 50.3% of net sales in fiscal 1999. Tandy Brands designs all of its belts and markets them under various licensed and proprietary brands including Florsheim, Jones New York, Canterbury, Haggar, and Bugle Boy, as well as private brands for major retailers. Management believes that the addition of the Tiger brand name through the acquisition of Tiger Accessories in fiscal 1998 provided a strong complement to the Company's existing belt business, established the Company well within the boys' belt segment and strengthened the Company's distribution into the mass merchant retail segment. The Company competes in all four categories of the belt market: casual, work, dress and fashion. In fiscal 1999, Tandy Brands manufactured approximately 44.9% of the men's belts it distributed and imported the balance from China, Guatemala and various other countries. The continuing trend toward casual attire has created an increasing demand for belts other than those in the traditional dress category. The Company's belt sales were $89.6 million in fiscal 1999, which represents an increase of 12.9% compared to fiscal 1998. In fiscal 1999, sales of men's and boys' belts represented $68.3 million, or 76.2% of total belt sales, and women's and girls' belts represented $21.3 million, or 23.8% of total belt sales. Small Leather Goods The Company's small leather goods consist primarily of men's and women's wallets. The Company designs all of its small leather goods and markets them under licensed and proprietary brands including Jones New York, Rolfs, Haggar, Bugle Boy, Canterbury, Prince Gardner, Princess Gardner and Amity, as well as private brands. The Company's fiscal 1999 results benefited from its May 1998 purchase of the Amity and Rolfs tradenames, the results of which were not material to fiscal 1998 consolidated results due to the timing of the purchase. Tandy Brands' small leather goods are primarily sourced from manufacturers in foreign countries, such as China, due to the labor-intensive nature of manufacturing small leather goods and the relative low cost of labor in those countries. Sales of the Company's small leather goods have increased in recent years as a result of increased market penetration through the use of licensed and proprietary brands. Sales of small leather goods accounted for approximately $56.1 million, or 31.5% of Tandy Brands' net sales in fiscal 1999. In fiscal 1999, sales of men's and boys' small leather goods represented $29.3 million, or 52.3% of total small leather goods sales, and women's and girls' small leather goods represented $26.8 million, or 47.7% of the Company's total small leather goods sales. Other Accessories In addition to belts and small leather goods, Tandy Brands distributes accessories such as women's handbags, socks, scarves, hats, hair accessories and men's suspenders and neckwear. These products are marketed under certain of the Company's proprietary brands, licensed brands and private brands. These other accessories complement the Company's core belt and small leather goods products. All other accessory items sold by the Company are purchased by the Company from foreign and domestic sources and are manufactured according to the Company's design specifications. In fiscal 1999, Tandy Brands' sales of other accessories totaled $32.7 million, or 18.2% of its net sales. PROPRIETARY BRANDS In addition to its licensed and private brands, Tandy Brands produces and markets products under its own registered trademarks and trade names. The Company owns leading and well recognized trademarks such as Rolfs, Amity, Canterbury, Prince Gardner, Princess Gardner, Royalle by Prince Gardner, and Royalle by Princess Gardner. The Company intends to build on the success of its proprietary brand portfolio by pursuing additional ownership opportunities and expanding the assortment of products offered and the retail channels served by its proprietary brands. Net sales under the Company's proprietary brands were approximately $76.4 million, or 42.8% of the Company's net sales in fiscal 1999. 4 5 EXCLUSIVE LICENSE AGREEMENTS Tandy Brands has been awarded exclusive license agreements for several well recognized brands, including Jones New York, Florsheim, Bugle Boy, Haggar, John Weitz, Beverly Hills Polo Club and Botany 500. Generally, these license agreements cover specific products and require that the Company pay annual royalties, ranging from two to eight percent of net sales, based on minimum sales quotas or sales. The terms of the agreements are typically four to ten years, with options to extend the terms, provided certain sales or royalty minimums are achieved. For fiscal 1999, sales of the Company's licensed products accounted for approximately 11.3% of the Company's net sales, with no sales associated with any individual license agreement accounting for more than five percent of net sales. PRIVATE BRAND PRODUCTS In fiscal 1999, private brand products accounted for approximately $81.8 million, or 45.9% of the Company's net sales. Private brand programs offer the Company's customers exclusivity and pricing control over their products, both of which are important factors in the retail marketplace. Management believes that the Company's flexible sourcing capabilities, advanced electronic inventory management and replenishment systems and design, product development and merchandising expertise provide retailers with a superior alternative to direct sourcing of their private brand products. The Company's principal private brand programs include those for leading retailers such as Wal-Mart, JCPenney, Sears, and Target and nationally recognized private brand names such as Farah, Kathy Lee, Arizona, Jacqueline Ferrar, St. John's Bay and Cherokee. CUSTOMERS The Company sells its products through all major retail distribution channels throughout the United States and Canada, including mass merchants, national chain stores, major department stores, men's and women's specialty stores, golf pro shops and catalogs. The Company maintains strong relationships with major retailers in the United States and Canada, including Wal-Mart, Target, K Mart, Shopko, AAFES, Sears, JCPenney, Kohl's, May Department Stores, Dillard's, Mervyn's and Federated Department Stores. For fiscal 1999, Wal-Mart represented 38.7% of the Company's net sales. In fiscal 1999, the Company's top ten customers accounted for approximately 67.3% of net sales. The Company had firm backlog orders for fiscal years 1999 and 1998 totaling $9,432,000 and $8,004,000, respectively. Shipment of backlog orders in fiscal 1999 is subject to product availability prior to customer order cancellation dates. The Company currently uses electronic data interchange ("EDI") for electronic communications of invoices, shipping notices, purchase orders and other transactions. Due to the rapid fullfillment of EDI orders, the backlog at June 30, 1999 may not be indicative of future quarterly results. SALES, MARKETING, AND CUSTOMER SERVICE Management believes that the success of Tandy Brands has resulted in large part from the Company's strong customer relationships, strong sales and marketing organization and superior customer service, including "quick response" distribution, vendor inventory management services, EDI capabilities and expertise in the communication of fashion and lifestyle concepts through product lines and innovative point-of-sale presentations. The Company's accounts are developed and maintained through the coordinated efforts of senior management, regional managers, account executives and an organization of salespeople and independent sales representatives. Relationships with certain of the Company's national accounts such as Wal-Mart, Shopko, Kohls, Dillard's, JCPenney, Sears, K Mart and Target are managed by senior management or senior account executives. Senior managers are responsible for generating profitable performance results by developing, planning, selling and implementing merchandise programs for their accounts. Individual senior managers develop and maintain business relationships with customers' buyers and merchandise managers. Senior managers also develop and propose comprehensive programs relating to product, pricing and fixturing and assist customers' buyers and merchandise managers in the implementation of these programs. The implementation of 5 6 marketing programs is coordinated through the efforts of senior and regional managers. Senior managers are compensated based on a combination of salary and bonus tied to various measures of profitability. Regional managers are sales and service professionals with experience in retail and merchandising management. The regional manager's role, in addition to hiring, training and supervising sales associates, includes assisting customers in developing seasonal buying plans, assisting stores in developing plans for physical layouts of departments and fixtures and developing overall fixture and product presentation. The Company's in-store customer service relationships with various specialty stores, national chain stores and major department stores are maintained by a nationwide team of more than 60 sales associates in the United States and approximately 30 sales associates in Canada, who are organized on a regional basis and supervised by regional sales managers. Sales associates are responsible for overseeing accounts within a defined geographic territory, developing and maintaining business relationships with their respective customers, preparing and conducting line presentations and assisting customers in the implementation of programs at the individual store level. In addition, sales associates may, depending upon the needs of an individual customer, assist in the maintenance and presentation of merchandise on the selling floor. The Company's regional sales organization is supported by account executives. All sales personnel other than senior managers are compensated based on a combination of salary and commission. MERCHANDISING AND PRODUCT DEVELOPMENT The Company's product development and merchandising professionals work closely with customers, suppliers and Tandy Brands' licensors to interpret market trends, develop new products and create and implement comprehensive merchandising programs which consist of packaging and point-of-sale fixturing and presentation materials. The Company believes that its ability to design all of its products internally represents a significant competitive advantage because retail customers have become increasingly reliant on the design and merchandising expertise of their suppliers. COMPETITION Competition in the fashion accessories industry is intense. The Company's ability to remain competitive depends largely on its ability to maintain its customer relationships, create new designs and products and offer high quality merchandise at popular prices. The Company's men's and boys' belt business competes with a large number of companies, including Swank, Humphreys, Leegin, Max Leather and Salant. The Company's men's wallet business also competes with a large number of competitors, including Buxton, Humphreys, Mundi and Fossil. In women's and girls' belts, the Company competes primarily with Omega, Cipriani, Liz Claiborne, Circa and Fossil. The women's handbag business competes with Nine West, Liz Claiborne, Kenneth Cole, Fossil, Guess and others, while the women's personal leather goods business competes with Buxton, Mundi, Fossil, Liz Claiborne, Nine West and others. Tandy Brands competes on the basis of customer service, brand recognition, product quality and price. The Company believes that its ability to compete successfully is based on its strong customer relationships, superior customer service, strong national brand portfolio, national distribution capabilities, proprietary inventory management systems, flexible sourcing and product design and innovation. RAW MATERIALS AND SUPPLIERS The major raw materials for the Company's products are readily available from a variety of foreign and domestic sources. In fiscal 1999, the Company sourced certain finished products representing approximately 84% of its net sales from outside manufacturers, both domestic and foreign. The Company has strong relationships with a number of high quality, low-cost foreign manufacturers who provide particularly labor-intensive products, such as small leather goods, manufactured to the Company's specifications. 6 7 MANUFACTURING OPERATIONS The Company's manufacturing facilities are located in Yoakum, Texas and Scarborough, Ontario. The Yoakum, Texas, facility has the capacity to manufacture approximately 5.1 million belts per year. During fiscal 1999, Tandy Brands' manufacturing facilities operated at approximately 71% of capacity. The Company continually seeks to increase the automation of its manufacturing operations. The Company believes that it is one of the lowest-cost domestic belt producers because of its automated equipment, large production volumes and economies of scale in raw materials and finished goods sourcing. GOVERNMENTAL REGULATIONS Many of the Company's products are manufactured in countries other than the United States. Accordingly, those countries and the United States may from time to time modify existing quotas, duties, tariffs, or import restrictions, or otherwise regulate or restrict imports in a manner which could be material and adverse to the Company. In addition, economic and political disruptions in Asia and other parts of the world from which the Company imports goods could have an adverse effect on the Company's ability to maintain an uninterrupted flow of products to its major customers. Due to the fact that the Company sells its products to retail exchange operations of the United States military, and thus is a supplier to the federal government, the Company must comply with all federal statutes applicable to federal government suppliers. EMPLOYEES The Company had approximately 985 employees as of June 30, 1999. The Company believes that employee relations are generally good. ITEM 2. PROPERTIES. The Company owns and operates the various facilities in Yoakum, Texas, which are used for leather product manufacturing, product distribution and administrative offices. The Company leases facilities in Scarborough, Canada, which are used for the manufacture and distribution of leather goods. Additionally, the Company leases warehouse space in Dallas, Texas, and office space in Arlington, Texas, New York, New York, San Francisco, California, St. Louis, Missouri and Hong Kong. The Company has a renewal option for its corporate office space in Arlington. The Company owns the West Bend, Wisconsin facility which is utilized for the distribution of small leather goods. Management believes Tandy Brands' various properties are adequate and suitable for the particular uses involved. The total space owned, leased and occupied by the Company as of June 30, 1999, was as follows:
APPROXIMATE SQUARE FEET --------------------------- OWNED LEASED TOTAL ------- ------- ------- Warehouse and Office.................................... 413,000 169,000 582,000 Factory................................................. 63,000 27,000 90,000 ------- ------- ------- Total......................................... 476,000 196,000 672,000 ======= ======= =======
ITEM 3. LEGAL PROCEEDINGS. The Company is not involved in any material pending legal proceedings, other than ordinary routine litigation incidental to the Company's business. No material legal proceedings were terminated during the fourth quarter of the 1999 fiscal year. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the fourth quarter of the 1999 fiscal year. 7 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) The principal market for the registrant's common stock is the NASDAQ National Market System. The high and low bid information for the Company's common stock for each full quarterly period within the two most recent fiscal years appears on page 32 of the Company's 1999 Annual Report to Stockholders, which information is incorporated herein by reference. (b) The approximate number of record holders of common stock on September 16, 1999, was 1,099. (c) 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 payment of dividends in the future will be at the sole discretion of the Board of Directors and will depend upon the Company's profitability, financial condition, capital needs, future prospects, contractual restrictions and other factors deemed relevant by the Board of Directors. 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. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item appears on page 31 of the 1999 Annual Report to Stockholders, which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item appears on pages 27 through 30 of the 1999 Annual Report to Stockholders, which information is incorporated herein by reference. ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to the impact of interest rate changes and changes in the market value of its financial instruments. During fiscal 1999, the Company entered into a five-year interest rate swap agreement, which expires on November 17, 2003, converting $15,000,000 of outstanding indebtedness from a variable to a fixed interest rate to minimize these risks. At June 30, 1999, the Company's exposure to these market risk factors was not significant. 8 9 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item appears on pages 11 through 31 of the 1999 Annual Report to Stockholders, which information is incorporated herein by reference. Following is a cross reference for location of the requested information:
PAGE NUMBER IN THE TANDY BRANDS ACCESSORIES, INC. 1999 ANNUAL REPORT TO STOCKHOLDERS ----------------- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Statements of Income for the Years Ended June 30, 1999, 1998 and 1997....................... 11 Consolidated Balance Sheets at June 30, 1999 and 1998............................................... 12 Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 1998 and 1997................. 13 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1999, 1998 and 1997....... 14 Notes to Consolidated Financial Statements........... 15-25 Selected Unaudited Quarterly Financial Data.......... 25 Report of Independent Auditors....................... 26 Selected Financial Data.............................. 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item appears under the captions "Election of Directors," "Executive Officers" and "Security Ownership of Certain Beneficial Owners -- Compliance with Section 16(a) of the Securities Exchange Act of 1934" included in the Company's definitive Proxy Statement relating to the Company's 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item appears under the caption "Executive Compensation" included in the Company's definitive Proxy Statement relating to the Company's 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item appears under the caption "Security Ownership of Certain Beneficial Owners" included in the Company's definitive Proxy Statement relating to the Company's 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 9 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this Report: (l) The financial statements listed in response to Item 8 of this Report have been incorporated herein by reference to pages 11 through 31 of the Company's 1999 Annual Report to Stockholders. (2) Financial Statement Schedule: Report of Independent Auditors on Financial Statement Schedule For the three years in the period ended June 30, 1999, Schedule II -- Valuation and Qualifying Accounts The financial statement schedule should be read in conjunction with the consolidated financial statements in the Company's 1999 Annual Report to Stockholders. Financial statement schedules not included in this Report have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits: A list of the exhibits required to be filed as part of this Report is set forth in the Index to Exhibits, which immediately precedes such exhibits and is incorporated herein by reference. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of fiscal 1999. 10 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Date: September 24, 1999 Pursuant to the requirements of the Securities and Exchange Act of 1934, this has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME POSITION DATE - ---- -------- ---- /s/ DR. JAMES GAERTNER Director and Chairman of the September 24, 1999 - ----------------------------------------------------- Board Dr. James Gaertner /s/ J.S.B. JENKINS Director September 24, 1999 - ----------------------------------------------------- J.S.B. Jenkins /s/ MARVIN J. GIROUARD Director September 24, 1999 - ----------------------------------------------------- Marvin J. Girouard /s/ C. A. RUNDELL, JR. Director September 24, 1999 - ----------------------------------------------------- C. A. Rundell, Jr. /s/ ROBERT E. RUNICE Director September 24, 1999 - ----------------------------------------------------- Robert E. Runice /s/ GENE STALLINGS Director September 24, 1999 - ----------------------------------------------------- Gene Stallings /s/ MAXINE CLARK Director September 24, 1999 - ----------------------------------------------------- Maxine Clark /s/ STANLEY T. NINEMIRE Senior Vice President and September 24, 1999 - ----------------------------------------------------- Chief Financial Officer Stanley T. Ninemire
11 12 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tandy Brands Accessories, Inc. We have audited the consolidated financial statements of Tandy Brands Accessories, Inc. and subsidiaries as of June 30, 1999 and 1998, and for each of the three years in the period ended June 30, 1999, and have issued our report thereon dated August 10, 1999, incorporated by reference in this Annual Report on Form 10-K. Our audits also included the financial statement schedule listed in Item 14(a) of this Annual Report on Form 10-K. The schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Fort Worth, Texas August 10, 1999 12 13 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED JUNE 30,
ADDITIONS BALANCE AT ----------------------------------- BALANCE AT BEGINNING CHARGED TO COSTS CHARGED TO OTHER END OF DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD - ----------- ---------- ---------------- ---------------- ------------- ---------- 1999 Allowance for Doubtful Accounts And Returns.... $1,116,000 $465,000 $-0- $401,000 $1,180,000 1998 Allowance for Doubtful Accounts And Returns.... $1,076,000 $362,000 $-0- $322,000 $1,116,000 1997 Allowance for Doubtful Accounts And Returns.... $ 606,000 $787,000 $-0- $317,000 $1,076,000
- --------------- (1) Represents uncollectible accounts written off, net of recoveries. 13 14 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT INDEX
INCORPORATED BY REFERENCE (IF APPLICABLE) ------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT - ------------------------------ ---- -------- --------- ------- (3) Articles of Incorporation and by-laws 3.1 Certificate of Incorporation of Tandy Brands Accessories, Inc................ S-1 11/02/90 33-37588 3.1 3.2 By-laws of Tandy Brands Accessories, Inc.................................... S-1 11/02/90 33-37588 3.2 (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 Certificates of Tandy Brands Accessories, Inc.......... S-1 11/02/90 33-37588 4.2 4.3 Form of Preferred Share Purchase Rights Certificate of Tandy Brands Accessories, Inc....................... S-1 11/02/90 33-37588 4.3 4.4 Rights Agreement dated November 7, 1990, between Tandy Brands Accessories, Inc. and First National Bank of Boston................................. S-1 11/02/90 33-37588 4.4 (10) Material Contracts 10.1 Form of Distribution Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc....................... S-1 11/02/90 33-37588 10.1 10.2 Form of Service Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc....................... S-1 11/02/90 33-37588 10.2 10.3 Form of Tax Sharing Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc....................... S-1 11/02/90 33-37588 10.3 10.4 Form of Purchase Agreement dated December 31, 1990, between The Bombay Company, Inc. and Mr J.S.B. Jenkins.... S-1 11/02/90 33-37588 10.4 10.6 Tandy Brands Accessories, Inc. Stock Purchase Program....................... S-1 11/02/90 33-37588 10.6 10.7 Tandy Brands Accessories, Inc. Employees Investment Plan.............. S-1 11/02/90 33-37588 10.7 *10.8 Tandy Brands Accessories, Inc. 1991 Stock Option Plan...................... S-1 11/02/90 33-37588 10.8 *10.9 Form of Stock Option Agreement -- 1991 Stock Option Plan...................... S-1 11/02/90 33-37588 10.9
15
INCORPORATED BY REFERENCE (IF APPLICABLE) ------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT - ------------------------------ ---- -------- --------- ------- *10.10 Tandy Brands Accessories, Inc. Stock Bonus Plan............................. S-1 11/02/90 33-37588 10.10 10.11 Tandy Brands Accessories, Inc. Family Security Plan.......................... S-1 11/02/90 33-37588 10.11 10.12 Form of Agreement under Family Security Plan................................... S-1 11/02/90 33-37588 10.12 *10.13 Tandy Brands Accessories, Inc. Key Executive Disability Plan.............. S-1 11/02/90 33-37588 10.13 *10.14 Tandy Brands Accessories, Inc. Benefit Restoration Plan and related Trust Agreement and Amendments No. 1 and 2 Thereto................................ 10-K 09/25/97 0-18927 10.14 10.15 Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and Each of its directors and Officers............................... S-1 11/02/90 33-37588 10.15 10.16 Office Lease Agreement dated March 6, 1991, between John Hancock Mutual Life Insurance Co. and Tandy Brands Accessories, Inc. relating to the corporate offices...................... S-1 11/02/90 33-37588 10.16 10.17 Tandy Brands Accessories, Inc. Non- Qualified Formula Stock Option Plan for Non-Employee Directors................. S-8 02/10/94 33-75114 28.1 *10.18 Tandy Brands Accessories, Inc. 1993 Employee Stock Option Plan and form of Stock Option Agreement Thereunder...... S-8 02/10/94 33-75114 28.2 10.19 Tandy Brands Accessories, Inc. Non- Qualified Stock Option Plan for Non- Employee Directors..................... S-8 02/10/94 33-75114 28.3 10.20 Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors.............................. S-8 06/03/96 333-8579 99.1 10.21 Credit Agreement between Tandy Brands Accessories, Inc. and Chase Bank of Texas, N.A., successor-in-interest to Texas Commerce Bank, N.A. dated June 30, 1994 and Amendments No. 1, 2, and 3 Thereto................................ 10-K 09/25/97 0-18927 10.21 10.22 Credit Agreement between Tandy Brands Accessories, Inc. and NationsBank, N.A., successor-in-interest to Nations Bank of Texas, N.A dated as of May 16, 1997................................... 10-K 09/25/97 0-18927 10.22 10.23 Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan*............ S-8 12/12/97 333-42211 99.2
16
INCORPORATED BY REFERENCE (IF APPLICABLE) ------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT - ------------------------------ ---- -------- --------- ------- 10.24 Amendments No. 4 and 5 to the Credit Agreement between Tandy Brands Accessories, Inc. and Chase Bank (Texas Commerce) of Texas, N.A. dated as of June 10, 1994.......................... 10-Q 05/13/98 0-18927 10.24 10.25 Promissory Note between Tandy Brands Accessories, Inc. and NationsBank, N.A Dated as of May 16, 1998 and Amendment thereto. .............................. 10-K 09/21/98 0-18927 10.25 10.26 Registration Statement dated August 12, 1998 of Tandy Brands Accessories, Inc. Common Stock. ......................... S-3 08/12/98 333-61235 99.3 10.27 Promissory Note between Tandy Brands Accessories, Inc. and NationsBank, N.A. dated September 16, 1998. ............. 10-Q 11/10/98 0-18927 10.27 10.28 Amendment No. 6 to the Credit Agreement between Tandy Brands Accessories, Inc. and Chase Bank (Texas Commerce) of Texas, N.A. dated as of June 10, 1994. ................................. 10-Q 11/10/98 0-18927 10.28 10.29 Revolving Credit and Term Agreement between Tandy Brands Accessories, Inc. and NationsBank, N.A., dated as of November 17, 1998. .................... 10-Q 02/12/99 0-18927 10.29 10.30 ISDA Master Agreement between Tandy Brands Accessories, Inc. and NationsBank, N.A. , Dated as of November 17, 1998. .................... 10-Q 02/12/99 0-18927 10.30 10.31 Revolving Credit and Uncommitted Line of Credit Agreement between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, N.A., Dated as of April 30, 1999. .................... 10-Q 05/14/99 0-18927 10.31 10.32 Tandy Brands Accessories, Inc. Employees Investment Plan as Amended and Restated Effective April 1, 1999. ................................. 10-Q 05/14/99 0-18927 10.32 10.33 Promissory Note between Tandy Brands Accessories, Inc. and NationsBank, N.A dba Bank of America, N.A Dated as of May 17, 1999 and Amendment thereto.**............................. N/A N/A N/A N/A (13) Annual Report to security holders, Form 10-Q or quarterly report to security holders 13.1 Annual Report to Stockholders of Tandy Brands Accessories, Inc.**............. N/A N/A N/A N/A (21) Subsidiaries of the registrant 21.1 List of subsidiaries**................. N/A N/A N/A N/A (23) Consents of experts and counsel 23.1 Consent of Ernst & Young LLP**......... N/A.. N/A N/A N/A
17
INCORPORATED BY REFERENCE (IF APPLICABLE) ------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT - ------------------------------ ---- -------- --------- ------- (27) Financial Data Schedule 27.1 Financial Data Schedule for the year ended June 30, 1999**.................. N/A N/A N/A N/A
- --------------- * Management compensatory plan. ** Filed herewith.. EX-10.33 2 PROMISSORY NOTE 1 EXHIBIT 10.33 [BANK OF AMERICA LETTERHEAD] May 17, 1999 Tandy Brands Accessories, Inc. Arlington, Texas Re: Uncommitted Line of Credit Gentlemen: NationsBank, N.A. dba Bank of America, N.A. ("Bank of America") is pleased to provide an uncommitted $20,000,000 Money Market Line to Tandy Brands Accessories, Inc. ("TBA") upon the following terms and conditions: Money Market Line: An uncommitted $20,000,000 Money Market Line (the "Line") which shall be on an "as available" basis. Bank of America shall have no obligation to make any advance under the Line. TBA may also request under the Line that Bank of America (a) issue standby letters of credit and documentary letters of credit ("Letters of Credit") and (b) create banker's acceptances ("Acceptances"). The aggregate amount of (y) all undrawn amounts, and all amounts drawn and not reimbursed under any Letters of Credit, and (z) all outstanding Acceptances, shall be reserved under the Line and shall not be available for advances thereunder. Minimum Advance: $100,000, or any integral multiple of $25,000 in excess of such amount. Terms of Advances: TBA may request an advance under the Line not later than 11:30 a.m. (i) on the business day such advance is requested to be made if the maturity date of such advance is for no more than 29 days, or (ii) at least 2 business days prior to the business day such advance is requested to be made if the maturity date of such advance is for more than 29 days. The amount, interest rate (which shall be 2 Tandy Brands Accessories, Inc. May 17, 1999 Page 2 computed on the basis of actual days elapsed over a 360 day year) and maturity date of each advance (which may not be more than 90 days after the date of such advance) will be agreed upon by Bank of America and TBA on or before such advance is made (failing which such advance will not be made) and such agreement shall be promptly confirmed in writing from Bank of America to TBA, which confirmation shall be conclusive in the absence of manifest error. Availability Period: Advances may be requested from the date of acceptance of this letter by TBA to the date either Bank of America or TBA, in its sole discretion, terminates the Line in writing. In the event Bank of America elects to terminate the Line, Bank of America may, in its sole discretion, demand that any outstanding advances be repaid, with accrued interest, on the effective date of termination. Promissory Note: Advances will be evidenced by a master revolving promissory note (the "Note") in the form of Exhibit A attached hereto. The terms of each advance will be recorded by Bank of America on the grid attached to the Note, but the inaccuracy, or the failure of Bank of America to make any such recordation shall not affect the obligations of TBA under the Note. Payments Prior to Maturity: If TBA elects or is required (other than upon demand by Bank of America made at a time that no default otherwise exists) to repay all or any part of any advance prior to its agreed upon maturity, TBA shall, at the request of Bank of America, pay to Bank of America such amount as Bank of America determines is necessary to compensate Bank of America for any breakage costs. Default: Advances under the Line are payable on demand, but if no demand is made, on the maturity date of the particular advance. A default shall be deemed to exist under the 3 Tandy Brands Accessories, Inc. May 17, 1999 Page 3 Note and Bank of America shall be entitled to accelerate the indebtedness evidenced by the Note and exercise its other available remedies in the event TBA fails to repay any advance, or accrued interest thereon, on demand or when due or upon the occurrence of a default or event of default, at maturity or permitting acceleration, under any agreement for money borrowed or for the deferred purchase price of property under which TBA is liable in an amount of $1,000,000 or more. In addition, the Line will be automatically terminated and the indebtedness evidenced by the Note will be automatically accelerated upon the insolvency of TBA or the commencement by or against (if not dismissed within 60 days) TBA of any bankruptcy, insolvency, moratorium or other debtor relief proceeding. Additional Requirements: TBA shall provide Bank of America the following information. 1. Copy of the audited consolidated FYE financial statement of Borrower as soon as available or within one hundred twenty (120) days after the close of each fiscal year. 2. Copy of the consolidated quarterly financial statements of Borrower as soon as available or within forty-five (45) days after the close of each fiscal quarter. 3. With each financial statement, a copy of TBA's compliance certificate required under its financial agreements with Wells Fargo HSBA Trade Bank, N.A. and Bank of America. Notification: TBA shall notify Bank of America in writing within five (5) business days regarding any modifications, amendments, waivers, etc. to its existing credit agreement with Wells Fargo HSBC Trade Bank, N.A. Governing Law: Texas 4 Tandy Brands Accessories, Inc. May 17, 1999 Page 4 THIS WRITTEN AGREEMENT, TOGETHER WITH THE NOTE, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. Very truly yours, NATIONSBANK, N.A. dba BANK OF AMERICA, N.A. /s/ VINCE LIBERIO By: Vince Liberio Title: Senior Vice President Accepted and Agreed To: By: /s/ STAN NINEMIRE -------------------------------- Title: SVP, CFO ----------------------------- 5 [BANK OF AMERICA LETTERHEAD] Exhibit "A" NOTE $20,000,000 Fort Worth, Texas May 17, 1999 For value received, TANDY BRANDS ACCESSORIES, INC., a Delaware Corporation (the "Borrower"), promises to pay to the order of NATIONSBANK, N.A., dba Bank of America, N.A. (the "Bank") the unpaid principal amount of each advance made by the Bank to the Borrower pursuant to the Letter Agreement referred to below ON DEMAND or, if not theretofore demanded, on the maturity date therefor determined in accordance with the Letter Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such advance ON DEMAND or, if not theretofore demanded, on such maturity date and at the rate determined in accordance with the Letter Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of the Bank, 500 West Seventh Street, Fort Worth, Texas 76102-4700. All advances made by the Bank, the respective interest rates applicable thereto and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made apart hereof, provided that the inaccuracy of, or the failure of the Bank to make, any such recordation shall not affect the obligations of the Borrower hereunder. This note is the Note referred to in the Letter Agreement dated as of May 17, 1999 between the Borrower and the Bank (as the same may be amended from time to time, the "Letter Agreement"). Reference is made to the Letter Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. TANDY BRANDS ACCESSORIES, INC. By: ------------------------------------ Title: --------------------------------- 6 NOTE (cont'd) ADVANCES AND PAYMENTS OF PRINCIPAL
- -------------------------------------------------------------------------------- Notation Amount of Interest Amount of Maturity Date Advance Rate Principal Repaid Date Made By - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
7 [BANK OF AMERICA LETTERHEAD] NOTE $20,000,000 Fort Worth, Texas May 17, 1999 For value received, TANDY BRANDS ACCESSORIES, INC., a Delaware Corporation (the "Borrower"), promises to pay to the order of NATIONSBANK, N.A., dba Bank of America, N.A. (the "Bank") the unpaid principal amount of each advance made by the Bank to the Borrower pursuant to the Letter Agreement referred to below ON DEMAND or, if not theretofore demanded, on the maturity date therefor determined in accordance with the Letter Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such advance ON DEMAND or, if not theretofore demanded, on such maturity date and at the rate determined in accordance with the Letter Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of the Bank, 500 West Seventh Street, Fort Worth, Texas 76102-4700. All advances made by the Bank, the respective interest rates applicable thereto and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof, provided that the inaccuracy of, or the failure of the Bank to make, any such recordation shall not affect the obligations of the Borrower hereunder. This note is the Note referred to in the Letter Agreement dated as of May 17, 1999 between the Borrower and the Bank (as the same may be amended from time to time, the "Letter Agreement"). Reference is made to the Letter Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. TANDY BRANDS ACCESSORIES, INC. By: /s/ STAN NINEMIRE ------------------------------------ Title: SVP, CFO --------------------------------- 8 AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT This Amendment To Revolving Credit and Term Loan Agreement (this "AMENDMENT") is made by and between TANDY BRANDS ACCESSORIES, INC., a Delaware corporation ("BORROWER"), and NATIONSBANK, N.A. d/b/a Bank of America, N.A., a national banking association ("LENDER"). WHEREAS, the parties entered into that one certain Revolving Credit Loan Agreement dated November 17, 1998 (the Revolving Credit Loan Agreement dated November 17, 1998 and all amendments thereto and restated thereof are hereinafter referred to as the "LOAN AGREEMENT"); and WHEREAS, the parties desire to amend the Loan Agreement in certain respects. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: 1. The definition "TERMINATION DATE" in Section 1 of the Loan Agreement is amended to read as follows: "TERMINATION DATE" means (a) for the Revolving Credit Loan, the earliest of (i) May 18, 2001, (ii) the date that Lender's commitment to fund Advances hereunder is terminated pursuant to SECTION 8.2, or (iii) the date that Lender's commitment to fund Advances hereunder is reduced to zero pursuant to SECTION 2.1, and (b) for the Term Loan, November 17, 2003. 2. Section 5.19 of the Loan Agreement is amended to read as follows: 5.19 ERISA. Except as disclosed on Schedule 5.19, attached hereto, neither Borrower nor any ERISA Affiliate has any Plans. 3. Sections 7.2 and 7.7 of the Loan Agreement are amended to read as follows: 7.2 NEGATIVE PLEDGE AGREEMENTS. Borrower shall not, and shall not permit any of its domestic Subsidiaries to, enter into any agreement (excluding this Agreement or any other Loan Documents and the Credit Agreement dated April 30, 1999 between Borrower and Wells Fargo HSBC Trade Bank, N.A.) prohibiting the creation or assumption of any Lien upon any of its property, revenues, or assets, whether now owned or hereafter acquired, or the ability of any Subsidiary to make any payments, directly or indirectly, to Borrower by way of Dividends, advances, repayments of loans, repayments of expenses, accruals, or otherwise. 9 7.7 GUARANTIES. Borrower shall not, and shall not permit any of its Subsidiaries to, become or be liable in respect of any Guaranty except in favor of Wells Fargo HSBC Trade Bank, N.A. and of NationsBank, N.A. 4. A new section 7.13 is added to the Loan Agreement which shall read as follows: 7.13 WRITE OFF. Borrower shall not, and shall not permit any of its Subsidiaries, to authorize or incur any non-cash write offs or write down of assets of in excess of $6,000,000 in the aggregate during any fiscal year. 5. Except as amended above, the Loan Agreement is ratified and confirmed and shall remain in full force and effect. 6. This Amendment shall be binding upon and inure to the benefit of the parties and their successors and assigns. 7. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES. Executed and effective as of the 18 day of May, 1999. BORROWER: TANDY BRANDS ACCESSORIES, INC., a Delaware corporation, as Borrower By: /s/ STAN NINEMIRE ------------------------------------ Stan Ninemire, Chief Financial Officer and Senior Vice President 2 10 LENDER: NATIONSBANK, N.A., d/b/a Bank of America, N.A., a national banking association, as Lender By: /s/ VINCENT A. LIBERIO ------------------------------------- Vincent A. Liberio, Senior Vice President 3 11 SCHEDULE 5.19 SCHEDULE OF ERISA PLANS TANDY BRANDS ACCESSORIES, INC. EMPLOYEES INVESTMENT PLAN TIGER ACCESSORIES, INC. 401(K) PLAN 4 EX-13.1 3 ANNUAL REPORT TO SECURITY HOLDERS 1 EXHIBIT 13 [TANDY BRANDS ACCESSORIES, INC. LOGO] [PHOTO COLLAGE] ANNUAL REPORT 1999 2 LETTER TO SHAREHOLDERS OUTSTANDING BUSINESS PERFORMANCE We are pleased to report another outstanding year for Tandy Brands Accessories, Inc. The continued growth of sales and profits is the direct result of the daily efforts of over 1,000 Tandy Brands associates. Throughout this annual report we have presented a small sampling of some of the names and faces that are representative of the exceptional people who make up our company team. It is the talent, drive and persistence of our Tandy Brands team which has made possible the leadership position the company holds in the men's and women's accessory market today. The ultimate result of these combined efforts by the people of Tandy Brands was our ability to continue a trend of outstanding financial achievement spanning the last three years. In fiscal 1999, net sales increased for the year an impressive 32.1% to $178.4 million, and net income increased 34.3% to $9.7 million, or $1.67 earnings per diluted share. This success was primarily attributable to the successful integration of the business and brand-name acquisitions we made in late fiscal 1998, as well as our successful multi-level brand strategy and increasing depth of product offerings. SUCCESSFUL ACQUISITION INTEGRATION During 1999, the entire Tandy Brands team worked toward a smooth integration of the Amity/Rolfs and Tiger acquisitions into the daily operations of our men's and women's businesses. Additionally, we focused considerable sales energy on addressing the product needs of these new customers and their unique customer service requirements. As a result, we increased our customer base and exceeded our annual internal financial estimates for these two acquisitions. The company's 1999 annual sales and income gains are a report card on the efforts of a large number of Tandy Brands associates who used their talents and worked long hours to make these acquisitions a success. INVESTMENTS FOR FUTURE GROWTH A strategic focus of the company has been an ongoing program of investment in technology, machinery and facilities which enable or accelerate future growth. In fiscal 1999, we completed an expansion of our distribution center in Yoakum, Texas, allowing the swift relocation of the Tiger Accessories operations. We completed the implementation of a new distribution software application in our West Bend distribution center which will provide important improvements in inventory tracking and inventory management. Also, we purchased new manufacturing equipment, which will increase our factory productivity and allow us to produce a greater volume of belts without increasing the square footage of our manufacturing operation. We have committed to continuing capital investments in fiscal 2000, including a new, leased distribution facility in Dallas, Texas, for women's accessories, as well as additional computer hardware and software applications which will open up new opportunities in supply-chain management and e-commerce. These capital expenditures will provide the people of Tandy Brands the world-class tools and facilities necessary to support the company's planned growth. Clayton Niles, the company's past Chairman of the Board of Directors, was fond of saying "the people of Tandy Brands are its greatest asset." The truth of that statement is evident throughout the pages of this annual report- in the people you will see, in the product they design and produce, in our customer sales relationships, and finally in the excellent financial results which is the end result of this collective effort. The people of Tandy Brands Accessories, Inc. have made it all possible and we thank them for their efforts as we also thank our shareholders for their investment and confidence in our efforts to continue to grow Tandy Brands Accessories, Inc. into the dominant accessories company in the market. [PHOTO] /s/ JAMES F. GAERTNER (left) James F. Gaertner Chairman of the Board /s/ J.S.B. JENKINS (right) J.S.B. Jenkins President and Chief Executive Officer 1 3 [PHOTO] Samantha Dennett Network Specialist H.A. Sheldon Toronto, Canada [PHOTO OF HANDBAGS] [PHOTO] Donald Cunningham Edge Beveler Manufacturing Division Yoakum, Texas [PHOTO] Margo Mason Vice President, Sales Accessory Design Group New York, New York 4 STYLE With the acquisition of the Frank Spielberg handbag organization in July of 1999, TBA further expanded its women's business and full-line capabilities inside fashion accessories. Handbags are an important growth segment within the women's division. [PHOTO OF HANDBAGS] 5 CLASSIC As the largest classification within Tandy Brands Accessories, Inc., the men's belt category covers offerings for boys', young men's, men's, and big men's customers. Belts of all types, designs, materials and brands give the company impressive diversity and flexibility. [PHOTO OF BELTS] 6 [PHOTO OF BELTS] [PHOTO] Donna Meskauskas Sales Coordinator Corporate Office Arlington, Texas [PHOTO] Sandi Barger Staff Accountant Corporate Office Arlington, Texas [PHOTO] Randall Hensley Sales Representative Blythewood, South Carolina 7 [PHOTO] Jeff Karwich Import Manager Corporate Office Arlington, Texas [PHOTO] Mertes Culak Customer Service Supervisor Distribution Center Yoakum, Texas [PHOTO] Janice Gooch Executive Assistant Corporate Office Arlington, Texas [PHOTO OF HANDBAG AND BELTS] 8 [PHOTO OF HAT AND GLOVES] FASHION The corporation's Accessory Design Group division is recognized throughout the industry for its ability to spot significant merchandise trends and translate them into popularly priced products for a wide variety of retail accounts across the United States and Canada. 9 [PHOTO OF HANDBAGS AND WALLETS] 10 QUALITY Recognized as a premier brand in personal leather accessories for men and women, ROLFS(R) provides exceptional value to retailers and consumers. Fashion and function are blended together in a wide variety of personal leather items and handbags. [PHOTO OF WALLETS] [PHOTO] Sally Morrison Shipping Associate Amity/Rolfs West Bend, Wisconsin [PHOTO] Kathy Dickinson Leadperson, Shipping Department Distribution Center Yoakum, Texas [PHOTO] Victor Rodriguez Warehouse Supervisor Accessory Design Group Dallas, Texas 11 FINANCIAL POLICY Through the expression of financial policies, the management and directors of Tandy Brands Accessories, Inc. seek to assure stockholders that management targets ambitious growth and returns, while maintaining a prudent capital structure. Accordingly, we have set forth our financial policies and objectives in this annual report. As formulations, they are simple to understand. As management directives, they are challenging to achieve. CASH FLOW Maximizing cash flow is a cornerstone of the Company's financial policy. Cash, the most versatile asset, is the fuel for growth. Although short-term growth may be financed from external or internal sources, long-term growth relies ultimately on the generation of cash from operations. The Company seeks to optimize cash flow-defined as net income plus non-cash charges such as depreciation, amortization and deferred income tax expense-through consistent achievement of earnings growth, through high return on assets used in operations and through early recognition of tax benefits. In 1999, cash flow increased to $13.2 million from $9.8 million in 1998, or an annual growth rate of 34.1 percent. CAPITAL STRUCTURE Total capital includes all continuing sources of capital to Tandy Brands Accessories, Inc., including interest-bearing debt, deferred income taxes and stockholders' equity. The Company's long-term objective is to maintain the ratio of interest-bearing debt to total capital to 30 percent or less. At June 30, 1999, the debt to total capital ratio decreased to 43 percent compared to 46 percent for the prior year. The cash purchase of certain assets of AR Accessories Group, Inc. and the acquisition of Tiger Accessories, Inc. during the fourth quarter of fiscal 1998 significantly increased our debt level, which resulted in the Company exceeding its debt to total capital target for 1998 and 1999. It is anticipated that the Company's debt will be further reduced in fiscal 2000 by the operational cash flow of the Company. LEVERAGE Tandy Brands Accessories, Inc. continues to finance its growth primarily through internal cash flow and the use of borrowed funds. At June 30, 1999, the Company had borrowings of $47.4 million under its bank lines of credit compared to $42.6 million in the prior year. It is anticipated that this debt will be repaid through future cash flows, allowing the Company to fund future growth and maintain its capital structure objectives. PROFIT GROWTH AND RETURN ON ASSETS The commitment of low-cost capital to a growth business requires the promise of attractive returns. Tandy Brands Accessories, Inc. seeks annual growth on average of at least 20 percent in pre-tax profits and a minimum pre-tax, pre-interest return on average assets used in operations of 25 percent. Assets used in operations include all assets except corporate cash, marketable securities and goodwill. During the year just ended, the Company's pre-tax profit grew at a rate of 34.3 percent and its pre-tax, pre-interest return on average operating assets was 20.3 percent. RETURN ON EQUITY AND CAPITALIZATION Tandy Brands Accessories, Inc. also seeks, through a combination of high-asset returns and prudent debt levels, to achieve an after-tax return on average equity of at least 17 percent. During 1999, the Company achieved an after-tax return on average equity of 16 percent compared to a prior year performance of 16 percent. ANTICIPATED GROWTH The Company's objective is to achieve annual growth in operating assets of at least 15 percent. As a result of internal growth and acquisitions, growth in operating assets of 14 percent was achieved for fiscal 1999. Because a portion of the Company's growth may continue to come from acquisitions, the use of stock for some acquisitions, subject to market conditions, could further accelerate the Company's average growth rate. NET SALES 1997 $103 MILLION 1998 $135 MILLION 1999 $178 MILLION
EARNINGS PER SHARE-DILUTED 1997 $ .83 1998 $1.27 1999 $1.67
RETURN ON AVERAGE ASSETS 1997 17% 1998 21% 1999 20%
10 12 CONSOLIDATED STATEMENTS OF INCOME TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES (In thousands, except per share amounts)
YEAR ENDED JUNE 30, 1999 1998 1997 --------- --------- --------- Net sales ............................................. $ 178,373 $ 135,041 $ 102,507 Cost of goods sold .................................... 112,705 86,120 64,249 --------- --------- --------- Gross margin ....................................... 65,668 48,921 38,258 Selling, general and administrative expenses .......... 43,995 33,929 28,123 Depreciation and amortization ......................... 3,135 1,990 1,750 --------- --------- --------- Total operating expenses ........................... 47,130 35,919 29,873 --------- --------- --------- Operating income ...................................... 18,538 13,002 8,385 Interest expense ...................................... (3,011) (1,517) (1,242) Royalty, interest and other income .................... 135 176 141 --------- --------- --------- Income before provision for income taxes .............. 15,662 11,661 7,284 Provision for income taxes ............................ 5,945 4,424 2,720 --------- --------- --------- Net income ...................................... $ 9,717 $ 7,237 $ 4,564 ========= ========= ========= Earnings per common share ............................. $ 1.70 $ 1.30 $ .84 ========= ========= ========= Earnings per common share-assuming dilution ........... $ 1.67 $ 1.27 $ .83 ========= ========= ========= Common shares outstanding ............................. 5,725 5,576 5,451 ========= ========= ========= Common shares outstanding-assuming dilution ........... 5,814 5,682 5,483 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 11 13 CONSOLIDATED BALANCE SHEETS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES (Dollars in thousands)
JUNE 30, 1999 1998 ---- ---- ASSETS Current assets: Cash and cash equivalents ........................................................ $ 180 $ 283 Accounts receivable, net of allowances of $1,180 and $1,116 ...................... 33,514 27,565 Inventories ...................................................................... 55,559 48,003 Other current assets ............................................................. 1,823 2,329 --------- --------- Total current assets .......................................................... 91,076 78,180 --------- --------- Property, plant and equipment, at cost: Buildings ........................................................................ 6,701 6,563 Leasehold improvements ........................................................... 1,100 1,399 Machinery and equipment .......................................................... 9,386 8,148 --------- --------- 17,187 16,110 Accumulated depreciation ......................................................... (6,722) (5,355) --------- --------- Net property, plant and equipment ............................................. 10,465 10,755 --------- --------- Other assets: Goodwill, net of accumulated amortization of $4,345 and $3,577 ................... 10,373 10,489 Other intangibles, net of accumulated amortization of $2,825 and $2,035 .......... 7,419 7,739 Other noncurrent assets .......................................................... 805 857 --------- --------- Total other noncurrent assets ................................................. 18,597 19,085 --------- --------- $ 120,138 $ 108,020 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................................................. $ 5,835 $ 6,789 Notes payable .................................................................... -- 7,600 Accrued payroll and bonuses ...................................................... 1,710 2,817 Accrued expenses ................................................................. 2,684 4,640 --------- --------- Total current liabilities ..................................................... 10,229 21,846 --------- --------- Other liabilities: Notes payable .................................................................... 47,425 35,000 Other noncurrent liabilities ..................................................... 292 333 --------- --------- Total other liabilities ....................................................... 47,717 35,333 --------- --------- Commitments (Note 6) Stockholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized; none issued .......... -- -- Common stock, $1 par value; 10,000,000 shares authorized; 5,761,952 shares and 5,616,724 shares issued and outstanding as of June 30, 1999 and 1998, respectively .................................... 5,762 5,617 Additional paid in capital ....................................................... 21,900 20,374 Cumulative other comprehensive income ............................................ (381) (344) Retained earnings ................................................................ 34,911 25,194 --------- --------- Total stockholders' equity .................................................... 62,192 50,841 --------- --------- $ 120,138 $ 108,020 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 12 14 CONSOLIDATED STATEMENTS OF CASH FLOWS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES (In thousands)
YEAR ENDED JUNE 30, 1999 1998 1997 -------- -------- -------- Cash flows from operating activities: Net income ............................................................................ $ 9,717 $ 7,237 $ 4,564 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation .................................................................... 1,722 1,212 1,074 Amortization .................................................................... 1,566 934 849 Deferred taxes .................................................................. 677 295 (265) Other ........................................................................... (139) (134) (76) Change in assets and liabilities, net of effects from acquisition: Accounts receivable ............................................................. (9,002) (6,049) (1,464) Accounts receivable purchased from AR Accessories Group, Inc. ................... 3,053 (3,053) -- Inventories ..................................................................... (12,693) (7,517) (5,650) Inventory purchased from AR Accessories Group, Inc. ............................. 5,137 (5,137) -- Accounts payable ................................................................ (954) 2,644 (1,444) Accrued expenses ................................................................ (3,104) 1,220 1,865 Other assets .................................................................... 212 441 276 -------- -------- -------- Net cash used for operating activities ................................................ (3,808) (7,907) (271) -------- -------- -------- Cash flows from investing activities: Purchases of property and equipment ................................................... (2,791) (2,449) (1,507) Sale of property and equipment ........................................................ -- 233 192 Acquisition of Tiger Accessories, Inc. ................................................ -- (5,591) -- Purchases of property, equipment and tradenames from AR Accessories Group, Inc. ....... -- (10,786) -- -------- -------- -------- Net cash used for investing activities ................................................ (2,791) (18,593) (1,315) -------- -------- -------- Cash flows from financing activities: Sale of stock to stock purchase program ............................................... 1,392 1,047 802 Exercise of employee stock options .................................................... 279 222 -- Proceeds from borrowings .............................................................. 73,727 82,350 44,750 Payments under borrowings ............................................................. (68,902) (57,390) (43,500) -------- -------- -------- Net cash provided by financing activities ................................................ 6,496 26,229 2,052 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ..................................... (103) (271) 466 Cash and cash equivalents at beginning of period ......................................... 283 554 88 -------- -------- -------- Cash and cash equivalents at end of period ............................................... $ 180 $ 283 $ 554 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ........................................................................... $ 2,810 $ 1,367 $ 1,179 Income taxes ....................................................................... 4,699 4,553 2,278
The accompanying notes are an integral part of these consolidated financial statements. 13 15 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES (Dollars in thousands)
COMMON STOCK ADDITIONAL -------------------------- PAID IN SHARES AMOUNT CAPITAL ------ ------ ----------- Balance at June 30, 1996 ................................... 5,382,267 $ 5,382 $ 18,038 Comprehensive income: Net income ............................................... -- -- -- Other comprehensive income, net of tax: Currency translation adjustments ...................... -- -- -- Comprehensive income ....................................... Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program .................................. 107,824 108 694 --------- --------- --------- Balance at June 30, 1997 ................................... 5,490,091 5,490 18,732 Comprehensive income: Net income ............................................... -- -- -- Other comprehensive income, net of tax: Currency translation adjustments ...................... -- -- -- Comprehensive income ....................................... Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program .................................. 69,561 70 977 Sale of unissued common stock to employees for exercise of stock options ........................... 28,902 29 193 Issuance of stock pursuant to the acquisition of Tiger Accessories, Inc. ................................. 28,170 28 472 --------- --------- --------- Balance at June 30, 1998 ................................... 5,616,724 5,617 20,374 Comprehensive income: Net income ............................................... -- -- -- Other comprehensive income, net of tax: Currency translation adjustments ...................... -- -- -- Comprehensive income ....................................... Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program .................................. 87,335 87 1,305 Sale of unissued common stock to employees for exercise of stock options ........................... 57,893 58 221 --------- --------- --------- Balance at June 30, 1999 ................................... 5,761,952 $ 5,762 $ 21,900 ========= ========= ========= CUMULATIVE OTHER TOTAL RETAINED COMPREHENSIVE STOCKHOLDERS' EARNINGS INCOME EQUITY -------- ------------- ------------- Balance at June 30, 1996 ................................... $ 13,393 $ 34 $ 36,847 Comprehensive income: Net income ............................................... 4,564 -- 4,564 Other comprehensive income, net of tax: Currency translation adjustments ...................... -- (84) (84) --------- Comprehensive income ....................................... 4,480 --------- Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program .................................. -- -- 802 --------- --------- --------- Balance at June 30, 1997 ................................... 17,957 (50) 42,129 Comprehensive income: Net income ............................................... 7,237 -- 7,237 Other comprehensive income, net of tax: Currency translation adjustments ...................... -- (294) (294) --------- Comprehensive income ....................................... 6,943 --------- Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program .................................. -- -- 1,047 Sale of unissued common stock to employees for exercise of stock options ........................... -- -- 222 Issuance of stock pursuant to the acquisition of Tiger Accessories, Inc. ................................. -- -- 500 --------- --------- --------- Balance at June 30, 1998 ................................... 25,194 (344) 50,841 Comprehensive income: Net income ............................................... 9,717 -- 9,717 Other comprehensive income, net of tax: Currency translation adjustments ...................... -- (37) (37) --------- Comprehensive income ....................................... 9,680 --------- Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program .................................. -- -- 1,392 Sale of unissued common stock to employees for exercise of stock options ........................... -- -- 279 --------- --------- --------- Balance at June 30, 1999 ................................... $ 34,911 $ (381) $ 62,192 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 14 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY AND BASIS OF PRESENTATION Tandy Brands Accessories, Inc. (the "Company") designs, manufactures and markets fine leather goods, handbags, accessories and neckwear for men, women and children. 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 preparation of financial statements in conformity with generally accepted accounting principles 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. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers cash on hand, deposits in banks and short-term investments with original maturities of less than three months as cash and cash equivalents. INVENTORIES Inventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. Cost includes materials, direct and indirect labor and factory overhead. Market, with respect to raw materials, is replacement cost; and for work-in-process and finished goods, it is net realizable value. Inventories consist of the following:
JUNE 30, 1999 1998 ------------ ------------ Raw materials ..................... $ 6,560,000 $ 8,489,000 Work-in-process ................... 319,000 159,000 Finished goods .................... 48,680,000 39,355,000 ------------ ------------ $ 55,559,000 $ 48,003,000 ============ ============
PROPERTY AND EQUIPMENT Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated at the following rates using the straight-line method: Buildings 3% Leasehold improvements The lesser of the life of the lease or asset Machinery and equipment 10% to 33 1/3%
Maintenance and repairs are charged to expense as incurred. Renewals and betterments which materially prolong the useful lives of the assets are capitalized. The cost and the related accumulated depreciation of property retired or sold are removed from the accounts, and gains or losses from retirements and sales are recognized in the consolidated statements of income. GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles are amortized using the straight-line method over their estimated useful lives ranging from three to forty years. The weighted-average number of years over which goodwill and other intangibles are amortized is 16 years. Goodwill and other intangibles are reviewed for impairment based on estimated future undiscounted cash flows. 15 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUES The Company recognizes revenue when merchandise is shipped to customers and title to the goods has passed from the Company to the customer. Sales returns and allowances are recorded at the time the amounts can be reasonably estimated by the Company. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral. Credit losses have historically been within management's expectations. MAJOR CUSTOMER Consolidated net sales to Wal-Mart accounted for approximately 39%, 43% and 36% of the Company's sales in fiscal 1999, 1998 and 1997, respectively. No other customers accounted for 10% or more of total revenues. MAJOR SUPPLIER During fiscal 1999, 1998 and 1997, the Company purchased inventory of approximately $30,700,000, $19,500,000 and $18,900,000, respectively, from a supplier. The merchandise is purchased at amounts which approximate fair market value. Although the potential exposure for product flow interruption may be significant in the event of loss of such supplier, this exposure is mitigated in that the inventory may be purchased from various other sources. STOCK-BASED COMPENSATION The Company may, with the approval of its Board of Directors, grant stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting For Stock Issued To Employees," and, accordingly, recognizes no compensation expense for the stock option grants. The Company has adopted the disclosure-only provisions as specified by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting For Stock-Based Compensation." INCOME TAXES Income taxes have been provided for using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws. COMPREHENSIVE INCOME In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This standard was adopted by the Company in the first quarter of fiscal 1999. SFAS No. 130 requires that an enterprise report, by major component and as a single total, the change in its equity during the period from nonowner sources, which for the Company includes foreign currency translation adjustments. The impact of the adoption of this statement was primarily limited to the form and content of the Company's disclosures and does not materially impact the Company's consolidated financial position or statements of income, stockholders' equity and cash flows. SEGMENT INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes annual and interim reporting requirements for an enterprise's operating segments and related disclosures about its products and services, geographical areas in which it operates and major customers. The effect of the adoption of SFAS No. 131 during fiscal year 1999 was primarily limited to the form and content of the Company's disclosures in its annual report and does not materially impact the Company's consolidated financial position or statements of income, stockholders' equity and cash flows. 16 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed for or Obtained for Internal Use." The SOP is effective for the Company beginning in fiscal 2000. After the date of adoption, the SOP will require the capitalization of certain costs to develop or obtain software for internal use that the Company currently expenses as incurred and will require expensing certain costs that the Company now capitalizes. The Company does not anticipate that the adoption of this SOP will have a material impact on the Company's consolidated financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting guidelines for derivatives and requires an establishment to record all derivatives as assets or liabilities on the balance sheet at fair value. Additionally, this statement establishes accounting treatment for three types of hedges: hedges of changes in the fair value of assets, liabilities or firm commitments; hedges of the variable cash flows of forecasted transactions; and hedges of foreign currency exposures of net investments in foreign operations. Any derivative that qualifies as a hedge, depending on the nature of the hedge, will either be offset through earnings against the change in fair value of the hedged assets, liabilities or firm commitments or recognized in other comprehensive income until the hedged item is recognized in earnings. This SFAS is effective for the Company beginning in fiscal 2001. The Company is analyzing the implementation requirements and does not anticipate that the adoption of this statement will have a material impact on the Company's consolidated financial statements. NOTE 2 - ACQUISITIONS On May 12, 1998, the Company purchased certain assets of AR Accessories Group, Inc. ("AR") through an auction held in the Bankruptcy Court for the Eastern District of Wisconsin. The assets included, but were not limited to, wholesale accounts receivable, wholesale inventory, certain machinery and equipment, the distribution center located in West Bend, Wisconsin, and related tradenames including "Amity" and "Rolfs." The cash purchase price of approximately $18,976,000 was provided by drawing on existing bank lines. The related tradenames acquired through the auction of approximately $5,866,000 are being amortized over 20 years. The purchase of such assets did not constitute a "business" for purposes of Rule 3-05 and Rule 11-01(d) of Regulation S-X of the Securities and Exchange Commission. As a result, disclosure of pro forma information giving effect to the purchase of certain assets of AR is not presented. On June 1, 1998, the Company acquired all of the outstanding common stock of Tiger Accessories, Inc. ("Tiger") for an aggregate purchase price of $6,091,000 including acquisition-related costs. The purchase price was comprised of $5,591,000 in cash and 28,170 shares of Company issued common stock valued at $500,000. Tiger is a manufacturer and marketer of men's and boys' belts to various mass merchants. In conjunction with the purchase, the Company assumed approximately $4,189,000 in liabilities of which $1,790,000 in bank indebtedness was immediately retired. The acquisition was accounted for under the purchase method of accounting and the resultant goodwill of approximately $3,937,000 and other intangibles related to consideration given for non-compete agreements of approximately $500,000 are being amortized over 20 and 3 years, respectively. Unaudited pro forma consolidated results of Tandy Brands Accessories, Inc. and Tiger, as if the acquisitions had occurred at the beginning of fiscal year 1998, are as follows:
(Unaudited) 1998 ------------- Net sales............................................. $ 150,121,000 Net income............................................ $ 7,867,000 Earnings per common share............................. $ 1.41 Earnings per common share-assuming dilution........... $ 1.38
17 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 3 - EARNINGS PER SHARE The following sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
YEAR ENDED JUNE 30, 1999 1998 1997 ------- ------- ------- Numerator for basic and diluted earnings per share: Net income .................................................................. $ 9,717 $ 7,237 $ 4,564 ======= ======= ======= Denominator: Weighted-average shares outstanding ......................................... 5,708 5,559 5,444 Contingently issuable shares ................................................ 17 17 7 ------- ------- ------- Denominator for basic earnings per share-weighted-average shares ......... 5,725 5,576 5,451 Effect of dilutive securities: Employee stock options ...................................................... 75 93 29 Director stock options ...................................................... 14 13 3 ------- ------- ------- Dilutive potential common shares ......................................... 89 106 32 Denominator for earnings per share assuming dilution-adjusted weighted-average shares ..................................................... 5,814 5,682 5,483 ======= ======= ======= Earnings per share ............................................................. $ 1.70 $ 1.30 $ .84 ======= ======= ======= Earnings per share-assuming dilution ........................................... $ 1.67 $ 1.27 $ .83 ======= ======= =======
Options to purchase 237,600 shares of common stock at prices ranging from $15.50 - -$19.75 per share were outstanding during fiscal year 1999 but were not included in the computation of earnings per share-assuming dilution because the options' exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. NOTE 4 - CREDIT ARRANGEMENTS The Company has an unsecured line of credit with a bank for $45,000,000. Of this amount, $20,000,000 is an uncommitted facility, which expires on May 14, 2000. The $25,000,000 committed facility 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 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. Each facility may be used for borrowings or letters of credit. At June 30, 1999 and 1998, the Company had borrowings under the committed facility of $25,000,000 and $15,000,000, bearing interest at 6.63% and 7%, respectively. At June 30, 1999 and 1998, the Company had borrowings under the uncommitted facility of $5,050,000 and $5,000,000, bearing interest at 6.63% and 7%, respectively. At June 30, 1999 and 1998, the Company had letters of credit under the uncommitted facility of $9,514,000 and $13,282,000, respectively, which were used in conjunction with merchandise procurement. As the additional borrowing availability provided under the line of credit discussed below is sufficient to fund current maturities under the uncommitted facility, current maturities have been reclassified as long-term. The Company has an unsecured line of credit with another bank for $40,000,000. Of this amount, $15,000,000, which expires on May 14, 2001, is an uncommitted facility and bears interest at various rates with short-term durations. The remaining $25,000,000, which expires May 14, 2001, is a committed facility which requires the maintenance of certain financial covenants and the payment of a commitment fee of 1/4% on the unused balance. The committed facility bears interest at negotiated rates. Each facility may be used for borrowings or letters of credit. At June 30, 1999, the Company had total borrowings under such facilities of $17,375,000, bearing interest at 7.13%. At June 30, 1998, there were no borrowings under this line. 18 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 4 - CREDIT ARRANGEMENTS (CONTINUED) During fiscal 1999, the Company had an unsecured line of credit with another bank for $35,000,000. Of this amount, $25,000,000, which expired on April 30, 2000, was a committed facility. The line was used for borrowings or letters of credit and bore interest at negotiated rates. The remaining $10,000,000, which expired on April 30, 1999, was an uncommitted facility that was used for borrowings or letters of credit and bore interest at various rates with short-term durations. On April 30, 1999, the outstanding balance of this $35,000,000 unsecured line of credit was paid and the agreement terminated. As of June 30, 1999, there were no borrowings under this line; however, the Company had total borrowings under this facility of $22,600,000 at June 30, 1998. The Company also has a Canadian line of credit for approximately $525,000 secured by a letter of credit from a U.S. bank. At June 30, 1999 and 1998, there were no borrowings under this line of credit. 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 an interest rate swap agreement to lock in a fixed interest rate for a portion of these borrowings. During fiscal 1999, the Company entered into a five-year interest rate swap agreement, which expires on November 17, 2003, 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 June 30, 1999, the receive and pay rates related to the interest rate swap were 6% and 6.52%, respectively. The potential impact of market conditions on the fair value of the Company's indebtedness is not expected to be material. Given that such lines of credit bear interest at floating market interest rates, the fair value of amounts borrowed thereunder approximates carrying value. At June 30, 1999, the Company had borrowings under its credit lines of $47,425,000 bearing a weighted-average interest rate of 6.78%. Under the above credit facilities, future payments required for debt maturities will be $32,425,000 and $15,000,000 in fiscal years 2001 and 2004, respectively. NOTE 5 - INCOME TAXES Significant components of the Company's deferred tax assets and liabilities as of June 30, 1999 and 1998, are as follows:
1999 1998 ----------- ----------- Deferred tax assets: Inventory valuation ...................... $ 949,000 $ 620,000 Goodwill and other intangibles ........... -- 520,000 Other, net ............................... 621,000 523,000 ----------- ----------- Total deferred tax assets ............. 1,570,000 1,663,000 Deferred tax liabilities: Accounts receivable valuation ............ (90,000) (167,000) Goodwill and other intangibles ........... (688,000) -- Depreciation ............................. (79,000) (106,000) ----------- ----------- Total deferred tax liabilities ........ (857,000) (273,000) ----------- ----------- Net deferred tax asset ............. $ 713,000 $ 1,390,000 =========== ===========
19 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 5 - INCOME TAXES (CONTINUED) Significant components of the provision for income taxes are as follows:
1999 1998 1997 ----------- ----------- ----------- Current: Federal ........................ $ 6,030,000 $ 4,276,000 $ 2,722,000 Foreign ........................ 79,000 72,000 51,000 State and local ................ 513,000 371,000 212,000 ----------- ----------- ----------- 6,622,000 4,719,000 2,985,000 ----------- ----------- ----------- Deferred: Federal ........................ (662,000) (294,000) (254,000) State and local ................ (15,000) (1,000) (11,000) ----------- ----------- ----------- (677,000) (295,000) (265,000) ----------- ----------- ----------- Income tax provision ........ $ 5,945,000 $ 4,424,000 $ 2,720,000 =========== =========== ===========
The following table reconciles the statutory federal income tax rate to the effective income tax rate:
1999 1998 1997 ---- ---- ---- Statutory rate.............................................................. 34.0% 34.0% 34.0% State and local taxes, net of federal income tax benefit.................... 2.1% 2.1% 1.8% Other, net.................................................................. 1.9% 1.8% 1.5% ---- ---- ---- 38.0% 37.9% 37.3% ==== ==== ====
NOTE 6 - COMMITMENTS The Company leases property which includes office, manufacturing and warehouse facilities under operating leases, expiring through the year 2006 with varying renewal and escalation clauses. Rental expense for fiscal 1999, 1998 and 1997 totaled $1,648,000, $1,184,000 and $1,074,000, respectively. The Company has entered into licensing agreements with other companies for the purpose of using their trademarks on the Company's products. Royalty expense related thereto for fiscal 1999, 1998 and 1997 totaled $1,534,000, $1,382,000 and $1,209,000, respectively. Future minimum rental and royalty commitments as of June 30, 1999, are as follows:
FISCAL YEAR AMOUNT - ----------- ----------- 2000......................................................... $ 2,532,000 2001......................................................... 2,254,000 2002......................................................... 1,340,000 2003......................................................... 1,204,000 2004......................................................... 860,000 Thereafter................................................... 551,000 ----------- $ 8,741,000 ===========
20 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 7 - EMPLOYEE STOCK OPTIONS The Company has adopted various stock option incentive plans for officers and key management employees. All options will be granted at the market price as of the date of grant and have a contractual life of ten years. During fiscal 1999, the Company amended its employee stock option plans by reducing the vesting terms of options from five years to three years. At June 30, 1999 and 1998, the number of shares available for grant were 205,692 and 315,317, respectively. The following table reflects the employee stock option transactions subsequent to June 30, 1996:
NUMBER WEIGHTED-AVERAGE OF SHARES EXERCISE PRICE --------- ---------------- Outstanding at June 30, 1996 ........... 286,604 $ 11.68 Options granted ........................ 82,000 $ 6.72 Options exercised ...................... -- -- Options canceled or expired ............ (19,050) $ 11.04 ------- Outstanding at June 30, 1997 ........... 349,554 $ 10.55 Options granted ........................ 92,000 $ 12.89 Options exercised ...................... (5,675) $ 7.34 Options canceled or expired ............ -- -- ------- Outstanding at June 30, 1998 ........... 435,879 $ 11.08 Options granted ........................ 122,500 $ 17.25 Options exercised ...................... (50,150) $ 4.38 Options canceled or expired ............ (12,875) $ 13.80 ------- Outstanding at June 30, 1999 ........... 495,354 $ 13.22 ======= Exercisable at June 30, 1997 ........... 206,312 $ 11.06 ======= Exercisable at June 30, 1998 ........... 246,792 $ 11.38 ======= Exercisable at June 30, 1999 ........... 286,985 $ 12.15 =======
The following table segregates outstanding options into groups based on price ranges of less than and more than $10 per share:
$2.74-$9.25 $10.33-$19.75 ----------- ----------- All outstanding options: Number of shares ................................... 139,626 355,728 Weighted-average exercise price .................... $ 7.27 $ 15.55 Weighted-average remaining contractual life ........ 5.2 years 6.1 years Exercisable options: Number of shares ................................... 113,786 173,199 Weighted-average exercise price .................... $ 7.39 $ 15.27
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Company had accounted for its stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for fiscal 1999, 1998 and 1997: dividend yield of 0.0%; expected volatility of 0.55%; a risk-free interest rate of 6.42%; and an expected holding period of seven years. Using these assumptions for the options granted during fiscal 1999, 1998 and 1997 the weighted-average grant date fair value of such options was $10.87, $8.13 and $4.25, respectively. 21 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 7 - EMPLOYEE STOCK OPTIONS (CONTINUED) The Black-Scholes valuation models are used in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and the average life of options. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense on a straight-line basis over the options' vesting period. The Company's pro forma information follows:
1999 1998 1997 ------- ------- ------- Net income: As reported........................................ $ 9,717 $ 7,237 $ 4,564 Pro forma.......................................... $ 9,137 $ 7,113 $ 4,527 Earnings per share: As reported........................................ $ 1.70 $ 1.30 $ .84 Pro forma.......................................... $ 1.60 $ 1.28 $ .83 Earnings per share-assuming dilution: As reported........................................ $ 1.67 $ 1.27 $ .83 Pro forma.......................................... $ 1.57 $ 1.25 $ .83
NOTE 8 - NON-EMPLOYEE DIRECTOR STOCK PLANS In fiscal 1995, the stockholders of the Company adopted the Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors (the "Deferral Plan"). The Deferral Plan was established to provide non-employee directors an equity interest in the Company in order to attract and retain well-qualified individuals to serve as non-employee directors and to enhance the identity of interests between the non-employee directors and the stockholders of the Company. The Deferral Plan provides the directors with an election to defer the receipt of their annual and committee chair retainer fees until a future date determined by each director. The payment of such fees will be in the form of shares of the Company's common stock. The shares are calculated by dividing the deferred cash amount by the average closing price of the stock for each day of the period during which such cash amount would have been paid but for the deferral election. The Company records compensation expense for the amount of the directors' retainer fees. The Company benefits from cash retained when directors elect to defer their retainer fees and receive stock. The Deferral Plan provides for the granting of up to 50,000 shares of the Company's common stock to non-employee directors. The Deferral Plan became active in May 1996. During fiscal 1999, there were 6,673 shares issued to a director. Prior to fiscal 1999, there were no shares issued to the directors. Amounts recorded as compensation expense related to the Deferral Plan for fiscal 1999, 1998 and 1997 were $65,021, $72,942 and $98,395, respectively. The Company offers other stock incentive plans for non-employee directors. In conjunction with these plans, 79,241 options were outstanding as of June 30, 1999. The options range in price from $6.50 to $19.00 and are generally exercisable at a rate of 20% per year beginning one year after the grant date. During fiscal 1999 and 1998, 4,125 and 23,227 options were exercised, respectively. Prior to fiscal 1998, there were no options exercised. 22 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 9 - EMPLOYEE BENEFIT PLANS The Tandy Brands Accessories, Inc. Employees Investment Plan (the "Plan") is open to substantially all employees who have been employed by the Company for over two years. Under the Plan, participants may contribute 5% of their earnings, with the Company matching 150%. The contributions are paid to a trustee and invested primarily in Company common stock. Employer contributions are fully vested upon payment. The Tandy Brands Accessories, Inc. Stock Purchase Program (the "Program") is open to all full-time employees who are enrolled in the Tandy Brands Accessories Employees Investment Plan. Under the Program, participants may contribute 5% or 10% of their earnings, with the Company matching 50% of each participant's contribution. The Program also permits employees with six months to two years of service to participate in the Program with the Company matching 25% of each participant's contribution. The Program purchases treasury, if available, or unissued common stock directly from the Company at monthly average market prices. The participant's shares are fully vested upon purchase, the employee may withdraw at any time and the shares purchased under the Program are distributed to participants annually. Total Company contributions to these plans were approximately $1,129,000, $988,000 and $952,000 in fiscal 1999, 1998 and 1997, respectively. NOTE 10 - PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS PREFERRED STOCK The Company's Board of Directors is authorized to approve the issuance of preferred stock without further stockholder approval. The Board of Directors of the Company is also authorized to determine, without any further action by the holders of the Company's common stock, the dividend rights, dividend rate, conversion or exchange rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms of any series of preferred stock, the number of shares constituting any series of preferred stock and the designation thereof. No shares of preferred stock have been issued. In connection with the adoption of its Preferred Share Purchase Rights Plan (the "Rights Plan"), the Company has designated and reserved for issuance upon exercise of such rights 150,000 shares of Series A Junior Participating Cumulative Preferred Stock. Should the Board of Directors elect to exercise its authority to issue any additional series of preferred stock, the rights, preferences and privileges of holders of the Company's common stock would be made subject to the rights, preferences and privileges of such additional series. PREFERRED SHARE PURCHASE RIGHTS Prior to the spin-off of the Company, the Board of Directors authorized the Rights Plan. In conjunction with the spin-off, each share of the Company's common stock was distributed with one preferred share purchase right (collectively, the "Rights") which entitles the registered holder to purchase from the Company one one-hundredth (1/100) of a share of Series A Junior Participating Cumulative Preferred Stock at a price of $36 per one one-hundredth of a share, subject to adjustment. The Rights Plan is designed to deter coercive or unfair takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Company's Board of Directors, except pursuant to an offer conditioned upon a substantial number of Rights being acquired. The description and terms of the Rights are set forth in a Rights Agreement between the Company and BankBoston N.A., as Rights Agent. The Rights are not exercisable until the Rights Distribution Date as defined in the Rights Agreement and will expire on December 31, 2000, unless earlier redeemed by the Company. NOTE 11 - SUBSEQUENT EVENT 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 $3.5 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. 23 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 12 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION 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, 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. No intersegment revenue is recorded. Information regarding operations and assets by segment are as follows:
YEAR ENDED JUNE 30, 1999 1998 1997 --------- --------- --------- Revenue from external customers: Men's accessories .................................. $ 105,909 $ 70,386 $ 64,526 Women's accessories ................................ 72,464 64,655 37,981 --------- --------- --------- $ 178,373 $ 135,041 $ 102,507 ========= ========= ========= Operating income (loss) (1): Men's accessories .................................. 13,769 8,370 6,751 Women's accessories ................................ 4,769 4,632 1,634 --------- --------- --------- $ 18,538 $ 13,002 $ 8,385 ========= ========= ========= Interest expense ...................................... 3,011 1,517 1,242 Other (income) expense (2) ............................ (135) (176) (141) --------- --------- --------- Income before income taxes ............................ $ 15,662 $ 11,661 $ 7,284 ========= ========= ========= Depreciation and amortization expense: Men's accessories .................................. $ 2,190 $ 1,460 $ 1,384 Women's accessories ................................ 945 530 366 --------- --------- --------- $ 3,135 $ 1,990 $ 1,750 ========= ========= ========= Capital expenditures: Men's accessories .................................. $ 957 $ 4,485 $ 293 Women's accessories ................................ 266 1,680 185 Corporate .......................................... 1,568 1,620 1,029 --------- --------- --------- $ 2,791 $ 7,785 $ 1,507 ========= ========= ========= Total assets: Men's accessories .................................. $ 63,261 $ 56,338 $ 36,847 Women's accessories ................................ 45,281 39,445 22,739 Corporate .......................................... 11,596 12,237 5,778 --------- --------- --------- $ 120,138 $ 108,020 $ 65,364 ========= ========= =========
(1) Operating income consists of net sales less cost of sales, specifically identifiable selling, general and administrative expenses. (2) Other (income) expense includes royalty income on corporate tradenames and other (income) and expense not specifically identifiable to a segment. 24 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The summarized quarterly financial data (in thousands, except per share amounts) for the two years ended June 30, 1999, is set forth below:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- FISCAL 1999 Net sales ............................................. $ 44,281 $ 54,122 $ 38,247 $ 41,723 Gross profit .......................................... 16,480 20,069 14,085 15,034 Income before income taxes ............................ 3,895 6,042 2,800 2,925 Net income ............................................ 2,384 3,678 1,715 1,940 Earnings per common share ............................. $ .42 $ .64 $ .30 $ .34 Earnings per common share-assuming dilution ........... $ .41 $ .63 $ .29 $ .33 FISCAL 1998 Net sales ............................................. $ 30,865 $ 36,823 $ 32,970 $ 34,383 Gross profit .......................................... 11,616 13,531 12,023 11,751 Income before income taxes ............................ 3,132 4,431 2,275 1,823 Net income ............................................ 1,932 2,731 1,384 1,190 Earnings per common share ............................. $ .35 $ .49 $ .25 $ .21 Earnings per common share-assuming dilution ........... $ .35 $ .48 $ .24 $ .21
25 27 REPORT OF INDEPENDENT AUDITORS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES To the Board of Directors of Tandy Brands Accessories, Inc. We have audited the accompanying consolidated balance sheets of Tandy Brands Accessories, Inc. and subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tandy Brands Accessories, Inc. and subsidiaries at June 30, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Fort Worth, Texas August 10, 1999 26 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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. The Company's 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), DON LOPER(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 and catalogs. The Company seeks increased accessory sales and earnings through a variety of means, including increased sales through the Company's current operating units as well as growth through acquisition of similar businesses. During the fourth quarter of fiscal 1998, the Company purchased certain assets of AR Accessories Group, Inc. ("Amity/Rolfs") and acquired Tiger Accessories, Inc. See Note 2 to the consolidated financial statements. Although these two purchases had an immaterial impact on fiscal 1998 results because they were completed late in the year, the Company experienced significant growth in sales and earnings as a result of these purchases in fiscal 1999. Sales and gross margin data from the Company's segments for fiscal 1999 compared to the previous two fiscal years were as follows:
YEAR ENDED JUNE 30, 1999 1998 1997 --------- --------- --------- (Dollars in thousands) Net sales: Men's accessories ......................... $ 105,909 $ 70,386 $ 64,526 Women's accessories ....................... 72,464 64,655 37,981 --------- --------- --------- Total net sales ............................. $ 178,373 $ 135,041 $ 102,507 ========= ========= ========= Gross margin: Men's accessories ......................... $ 42,110 $ 28,240 $ 25,951 Women's accessories ....................... 23,558 20,681 12,307 --------- --------- --------- Total gross margin .......................... $ 65,668 $ 48,921 $ 38,258 ========= ========= ========= Gross margin as percentage of sales: Men's accessories ......................... 39.8% 40.1% 40.2% Women's accessories ....................... 32.5% 32.0% 32.4% Total ..................................... 36.8% 36.2% 37.3%
See Note 12 to the consolidated financial statements for certain other financial information with regard to the Company's men's and women's accessories segments. FISCAL 1999 COMPARED TO FISCAL 1998 NET SALES Net sales increased $43.3 million, or 32.1%, in fiscal 1999 as compared to fiscal 1998. The net sales increase during fiscal 1999 was primarily attributable to the purchase and acquisition transactions completed during the fourth quarter of fiscal 1998. See Note 2 to the consolidated financial statements. During fiscal 1999, the Amity/Rolfs and Tiger product lines contributed $38.2 million, or 88%, to the overall $43.3 million sales increase. The remaining 12%, or $5.1 million of the sales increase, was attributable to sales growth from the Company's existing men's and women's businesses. During fiscal 1999, net sales for men's and women's accessories increased 50.5% and 12.1%, respectively, as compared to fiscal 1998. As discussed above, the Amity/Rolfs and Tiger product lines contributed $31.1 million and $7.1 million to the fiscal 1999 men's and women's sales increases, respectively. 27 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES GROSS MARGIN Gross margins increased $16.7 million, or 34.2%, in fiscal 1999 as compared to fiscal 1998. As a percentage of sales, gross margins increased 0.6% in fiscal 1999 compared to fiscal 1998. This overall increase was the result of greater sales volume in the Company's small leather goods product line which because of brand name ownership, carry a higher gross margin in comparison with the other product categories sold by the Company. Men's and women's gross margins increased $13.9 million, or 49.1% and $2.8 million, or 13.9%, respectively, in fiscal 1999 as compared to fiscal 1998. As a percentage of sales, men's and women's gross margins decreased 0.3% and increased 0.5%, respectively, in fiscal 1999 as compared to fiscal 1998. The men's gross margin decrease was attributable to a higher mass merchant sales mix which were offset by gross margin increases in women's sales related to greater sales volume in the Company's small leather goods product line. OPERATING EXPENSES Selling, general and administrative expenses increased $10.1 million, or 29.7%, in fiscal 1999. However, selling, general and administrative expenses decreased 0.4% as a percentage of sales. A portion of this decrease was due to the successful integration of the Tiger Accessories, Inc. business and Amity/Rolfs product line during fiscal 1999. Interest expense for the fiscal year ended 1999 increased $1.5 million, as compared to the same period for the prior year. The increase is primarily related to higher debt levels as a result of the purchase of certain assets of Amity/Rolfs and the acquisition of Tiger Accessories, Inc. during the fourth quarter of fiscal 1998. Depreciation and amortization expenses were approximately $3.1 million in fiscal 1999, compared to approximately $2.0 million in fiscal 1998. The 57.5% increase was primarily attributable to depreciation expense and amortization related to the purchase of certain assets from AR Accessories Group, Inc., the acquisition of Tiger Accessories, Inc. and capital expenditures initiated at the end of fiscal 1998. The effective tax rates for fiscal 1999 and fiscal 1998 were 38.0% and 37.9%, respectively. The effective tax rate in fiscal 1999 increased due to additional state and local taxes. Net income for fiscal 1999 was $9.7 million, or $1.67 per diluted share, compared to $7.2 million, or $1.27 per diluted share in fiscal 1998. The 34.3% increase in net income was primarily attributable to the aforementioned sales increases, offset partially by increased depreciation and amortization expense and higher interest expense. FISCAL 1998 COMPARED TO FISCAL 1997 NET SALES Net sales increased $32.5 million, or 31.7%, in fiscal 1998 as compared to fiscal 1997. The net sales increase during fiscal 1998 was primarily attributable to additional product sales through existing channels of distribution by the Company's women's and men's accessory businesses. The men's accessories sales increased $5.8 million in fiscal 1998 due to increased retail store penetration under various brand names. The women's accessories sales increased $26.7 million in fiscal 1998, of which $14.5 million was related to new product categories including scarves, scarf accessories, hair accessories and children's accessories. Sales related to the acquisition of Tiger Accessories, Inc. and the purchase of certain assets of AR Accessories Group, Inc. contributed $3.9 million during the fourth quarter of fiscal 1998. GROSS MARGIN Gross margins increased $10.7 million, or 27.9%, in fiscal 1998. Men's and women's gross margins increased $2.3 million, or 8.8%, and $8.4 million, or 68.0%, respectively, in fiscal 1998 as compared to fiscal 1997. As a percentage of sales, gross margins decreased 1.1% in fiscal 1998 compared to fiscal 1997. Although fiscal 1998 men's gross margin percentage approximated that of fiscal 1997, the decrease is the result of an increasing women's mass merchant accessory sales mix as a percentage of net sales. Although these women's mass merchant sales were at lower gross margins than the Company's historical gross margins, they also carry a lower selling, general and administrative expense as a percentage of sales as compared to the Company's historical rates. OPERATING EXPENSES Selling, general and administrative expenses increased $5.8 million, or 20.6%, in fiscal 1998. However, selling, general and administrative expenses decreased 2.3% as a percentage of sales. The selling, general and administrative expense ratio was positively impacted by leveraging expenses against higher sales volumes. A portion of this decrease resulted from a larger mix of women's accessories sales to mass merchants which, on a percentage of sales basis, incur lower variable selling expenses as compared to product sales to other channels of distribution. 28 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Depreciation and amortization expenses were approximately $2.0 million in fiscal 1998, compared to approximately $1.8 million in fiscal 1997. The 13.7% increase was primarily attributable to depreciation expense and amortization related to the purchase of certain assets from AR Accessories Group, Inc., the acquisition of Tiger Accessories, Inc. and the purchase of property and equipment in fiscal 1998. The effective tax rates for fiscal 1998 and fiscal 1997 were 37.9% and 37.3%, respectively. The effective tax rate in fiscal 1998 increased 0.6% due primarily to additional state and local taxes. Net income for fiscal 1998 was $7.2 million, or $1.27 per diluted share, compared to $4.6 million, or $0.83 per diluted share in fiscal 1997. The 58.6% increase in net income was primarily attributable to significant sales increases, which resulted in significant selling, general and administrative expense volume efficiencies offset partially by increased sales of products with lower gross margins. LIQUIDITY AND CAPITAL RESOURCES During fiscal 1999, the Company used cash flows from operating activities of $3.8 million compared to a use of $7.9 million for fiscal 1998. This use of cash from operating activities decreased due to purchases of accounts receivable and inventory of AR Accessories Group, Inc. in fiscal 1998 amounting to $8.2 million. Cash flows resulting from the increase in net income were offset by increases in accounts receivable and inventory required to support the Company's higher levels of sales activities as well as the liquidation of liabilities related to the Tiger Accessories, Inc. acquisition. The Company used cash for investing activities of $2.8 million in fiscal 1999 compared to $18.6 million in fiscal 1998. During the fourth quarter of fiscal 1998, the Company acquired the stock of Tiger Accessories, Inc. and purchased property, equipment and tradenames of AR Accessories Group, Inc. using cash of $5.6 million and $10.8 million, respectively. See Note 2 to the consolidated financial statements. During fiscal 1999, the Company invested a total of $2.8 million in additional property and equipment. In order to support its increasing sales during fiscal 1999 and to accommodate the relocation of the Tiger Accessories operation, the Company completed the expansion of its distribution facility and purchased additional manufacturing equipment in Yoakum, Texas. Additionally, the Company purchased and installed a distribution center management system in the Company's West Bend, Wisconsin, facility. The Company's primary sources of liquidity for its various expenditures have been cash flows from operations and borrowings under bank credit arrangements. The Company has two unsecured bank credit lines aggregating $85 million which can be used for general corporate purposes including working capital requirements, acquisition activities and funding of letters of credit. See Note 4 to the consolidated financial statements. The Company also has a Canadian line of credit for approximately $525,000 secured by a letter of credit from a U.S. bank. As of June 30, 1999, the Company had credit availability under its credit facilities of approximately $28.6 million. See Note 11 to the consolidated financial statements regarding the purchase of certain assets of Frank Spielberg Sales LLC subsequent to the year ended June 30, 1999. 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. The Company believes it has adequate financial resources and access to sufficient credit facilities to satisfy its future working capital needs. YEAR 2000 COMPLIANCE Many existing computer programs utilize only two digits to identify a year in the date field. These programs, if not corrected, could fail or create erroneous results by or at the year 2000. This year 2000 issue is believed to affect virtually all companies and organizations, including the Company. The Company has undertaken a program to address its exposure to year 2000 issues. The Company has substantially completed the testing of its computer program modifications and believes that its compliance program will be successful. Costs incurred to date as part of the Company's program have not been significant. Although there can be no assurance with respect thereto, the Company does not expect that the year 2000 issues (including the cost of the Company's compliance program as currently estimated) will have a material adverse effect on the Company's financial position or results of operations. The Company's year 2000 compliance program requires the query of its significant suppliers, subcontractors and customers that do not share information systems with the Company ("external third parties"). This process has been substantially completed. To date, the Company is 29 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES unaware of any external third party with a year 2000 issue that would materially impact the Company's results of operations, liquidity or capital resources. However, the Company has no means of ensuring that external third parties will be year 2000 ready. The inability of external third parties to complete their year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external third parties is not determinable. 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 operating results of the Company during the past three fiscal years. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this annual report 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. 30 32 SELECTED FINANCIAL DATA TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES (In thousands, except per share amounts)
YEAR ENDED JUNE 30, 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- INCOME STATEMENT DATA: Net sales ............................................. $ 178,373 $ 135,041 $ 102,507 $ 86,694 $ 83,721 Gross profit .......................................... 65,668 48,921 38,258 32,720 32,829 Intangible asset impairment write-off (1) ............. -- -- -- 3,976 -- Operating income ...................................... 18,538 13,002 8,385 1,362 7,431 Interest expense ...................................... 3,011 1,517 1,242 1,267 1,048 Net income from continuing operations (2) ............. 9,717 7,237 4,564 101 4,195 Net income from continuing operations per share: Earnings per share ................................. $ 1.70 $ 1.30 $ 0.84 $ 0.02 $ 0.81 Earnings per share-assuming dilution ............... $ 1.67 $ 1.27 $ 0.83 $ 0.02 $ 0.80
JUNE 30, 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- BALANCE SHEET DATA: Working capital ....................................... $ 80,847 $ 56,334 $ 43,354 $ 34,082 $ 33,069 Total assets .......................................... 120,138 108,020 65,364 58,411 67,315 Long-term debt ........................................ 47,425 35,000 15,850 12,400 16,650 Stockholders' equity .................................. 62,192 50,841 42,129 36,847 35,839
(1) Related to a write-off of intangible assets arising from the acquisition of Prince Gardner in fiscal 1994. (2) During fiscal 1995, the Company recorded a loss of $3.2 million from discontinued operations related to its decision to dispose of the Always In Style operations. 31 33 PRICE RANGE OF COMMON STOCK TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Quoted by quarter for the two fiscal years ended June 30, 1999
FISCAL 1999 HIGH LOW September.................... $ 20.38 $ 12.00 December..................... $ 18.44 $ 11.00 March........................ $ 17.75 $ 14.75 June......................... $ 17.75 $ 13.25
FISCAL 1998 HIGH LOW September.................... $ 14.00 $ 9.50 December..................... $ 18.00 $ 13.00 March........................ $ 20.38 $ 15.50 June......................... $ 19.63 $ 17.00
As of August 11, 1999, there were approximately 1,103 stockholders of record. 32 34 CORPORATE INFORMATION DIRECTORS Dr. James F. Gaertner Chairman of the Board Dean of the College of Business The University of Texas at San Antonio J.S.B. Jenkins President and Chief Executive Officer Tandy Brands Accessories, Inc. C.A. Rundell Private Investor Robert E. Runice Private Investor Gene Stallings Collegiate and Professional Football Coach, Author and Private Investor Maxine K. Clark President and Chief Executive Officer Build-A-Bear Workshop, L.L.C. Marvin J. Girouard President and Chief Executive Officer Pier 1 Imports, Inc. [PHOTO] TOP FROM LEFT: Mr. Jenkins, Dr. Gaertner, Mr. Rundell BOTTOM FROM LEFT: Mr. Girouard, Ms. Clark, Mr. Stallings, Mr. Runice OFFICERS J. S. B. Jenkins President and Chief Executive Officer Jerry W. Wood Executive Vice President Stanley T. Ninemire Senior Vice President and Chief Financial Officer Darrel A. Rice Secretary CORPORATE DATA Corporate Offices 690 East Lamar Boulevard Suite 200 Arlington, Texas 76011 (817) 548-0090 www.tandybrands.com Annual Meeting 9:00 a.m., October 19, 1999 Hyatt Regency DFW International Parkway Inside Dallas/Ft.Worth Airport DFW Airport, Texas 75261 Common Stock Transfer Agent and Registrar BankBoston, N.A. Stock Inquiries: (781) 575-3120 Corporate Counsel Winstead Sechrest & Minick P.C. The Company's common stock is traded on the NASDAQ National Market System under the trading symbol TBAC. The Company's Form 10-K Report for the year ended June 30, 1999, as filed with the Securities and Exchange Commission, is available without charge upon request to Stanley T. Ninemire at the address of the Corporate Offices. EX-21.1 4 SUBSIDIARIES OF THE REGISTRANT 1 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT (21): SUBSIDIARIES OF THE REGISTRANT 21.1 List of subsidiaries
Subsidiaries of State or Other Jurisdiction of Names Under Which Such the Registrant Incorporation or Organization Subsidiaries Do Business - -------------- ----------------------------- ------------------------ Accessory Design Group, Inc. A Delaware Corporation Accessory Design Group, Inc. Accessory Design Group TBAC-Prince Gardner, Inc. A Delaware Corporation TBAC-Prince Gardner, Inc. Prince Gardner TBAC-AIS, Inc. A Delaware Corporation TBAC-AIS, Inc. H.A. Sheldon Canada Ltd. A Canadian Corporation 1088258 Ontario, Inc. H.A. Sheldon Canada Ltd. TBAC-Canterbury, Inc. A Delaware Corporation TBAC-Canterbury, Inc. Amity / Rolfs, Inc. A Delaware Corporation Amity / Rolfs, Inc. Tiger Accessories, Inc. A New York Corporation Tiger Accessories, Inc. TBAC General Management Co. A Delaware Corporation TBAC General Management Co. TBAC Investment, Inc. A Delaware Corporation TBAC Investment, Inc. TBAC Investment Trust A Pennsylvania Trust TBAC Investment Trust TBAC Management Co., L.P. A Delaware Limited Partnership TBAC Management Co., L.P. Tandy Brands Accessories Handbags, Inc. A Delaware Corporation Tandy Brands Accessories Handbags, Inc.
EX-23.1 5 CONSENT OF ERNST & YOUNG LLP 1 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT (23): CONSENTS OF EXPERTS AND COUNSEL 23.1 Consent of Ernst & Young LLP CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Tandy Brands Accessories, Inc. of our report dated August 10, 1999, included in the 1999 Annual Report to Stockholders of Tandy Brands Accessories, Inc. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-41262, 33-46814, 33-91996, 33-75114 and 333-8579) of (i) our report dated August 10, 1999, with respect to the consolidated financial statements of Tandy Brands Accessories, Inc. included in the 1999 Annual Report to Stockholders of Tandy Brands Accessories, Inc. and (ii) our report dated August 10, 1999, with respect to the financial statement schedule included in this Annual Report on Form 10-K for the year ended June 30, 1999. /s/ ERNST & YOUNG LLP Fort Worth, Texas September 20, 1999 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS ACCESSORIES, INC.'S JUNE 30, 1999, ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FILINGS. 1,000 YEAR JUN-30-1999 JUN-30-1999 180 0 34,694 1,180 55,559 91,076 17,187 6,722 120,138 10,229 47,425 0 0 5,762 56,430 120,138 178,373 178,373 112,705 112,705 3,135 0 3,011 15,662 5,945 9,717 0 0 0 9,717 1.70 1.67
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