<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION L3 OR L5(D)
OF THE SECURITIES EXCHANGE ACT OF L934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998 COMMISSION FILE NUMBER 0-18927
TANDY BRANDS ACCESSORIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
A DELAWARE CORPORATION 75-2349915
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
690 E. LAMAR BLVD., SUITE 200 Identification Number)
ARLINGTON, TEXAS, 76011
(Address of Principal Executive Offices)
</TABLE>
(Registrant's Telephone Number, Including Area Code) (817) 548-0090
Securities registered pursuant to Section l2(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 (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 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 4, 1998, through the National Market System of the National
Association of Securities Dealers Automated Quotation System) was approximately
$52,241,000.
There were 5,650,026 shares of common stock, $1.00 par value per share,
outstanding at September 4, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
(a) Annual Report to Stockholders for Fiscal Year Ended June 30, l998
(incorporated by reference in Parts II and IV).
(b) Definitive Proxy Statement for the Annual Meeting to be held October 20,
1998 (incorporated by reference in Part III).
================================================================================
<PAGE> 2
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
FORM 10-K
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), Greg Norman Collection(R), Rolfs(R), Haggar(R), Bugle Boy(R),
Canterbury(R), Prince Gardner(R), Princess Gardner(R), Amity(R), Accessory
Design Group(R) and Tiger(R), as well as private brands for major retail
customers. Proprietary brands, licensed brands and private brands accounted for
approximately 28%, 14% and 58%, respectively, of net sales during fiscal 1998.
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.
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:
<TABLE>
<CAPTION>
NAME OF BUSINESS
DATE ACQUIRED OR ASSETS ACQUIRED PRODUCT LINES BRANDS ACQUIRED
------------- ------------------ ------------- ---------------
<S> <C> <C> <C>
May 1, 1992 Accessory Design Group Women's accessories and Accessory Design Group
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 and Always In Style(1)
Accessories
April 4, 1994 Certain assets of Men's and women's small Prince Gardner
Prince Gardner leather goods Princess Gardner
Incorporated Royalle by Prince
Gardner
Royalle by Princess
Gardner
August 30, 1994 H.A. Sheldon, Inc. Men's belts, wallets and Various private brands
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 small Amity Rolfs
Accessories Group, leather goods
Inc.
June 1, 1998 Tiger Accessories, Inc. Men's and boys' belts Tiger
</TABLE>
(1) On March 27, 1995 the Company announced its decision to discontinue its
Always In Style operations.
2
<PAGE> 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:
<TABLE>
<CAPTION>
BRAND DISTRIBUTION CHANNEL PRODUCTS
----- -------------------- --------
<S> <C> <C>
Jones New York........... Department stores Handbags
Specialty stores Small leather goods
Greg Norman Collection... Golf pro shops Belts
Specialty stores Small leather goods
Department stores
Catalogs
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
Accessory Design Group... Mass merchants Belts
National chain stores Women's accessories
Tiger.................... Mass merchants Belts
National chain stores
</TABLE>
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 58.8% and 16%, respectively, of the
Company's net sales for fiscal 1998. 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 25.2% of net sales in fiscal 1998. Men's and boys' products accounted
for approximately 51.9% of net sales during fiscal 1998, and women's and girls'
products accounted for approximately 48.1% of net sales during the same period.
Proprietary brands, licensed brands and private brands accounted for
approximately 28%, 14% and 58%, respectively, of net sales during fiscal 1998.
3
<PAGE> 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 61.8% of net sales in fiscal 1998. Tandy
Brands designs all of its belts and markets them under various licensed and
proprietary brands including Jones New York, Canterbury, Haggar, Bugle Boy and
Greg Norman Collection, as well as private brands for major retailers.
Management believes that the recent addition of the Tiger brand name through the
acquisition of Tiger Accessories provides a strong complement to the Company's
existing belt business, establishes the Company well within the boys' belt
segment and strengthens 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 1998, Tandy Brands manufactured approximately
51% 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 $79.4 million in fiscal 1998, which represents a compound annual
growth rate of approximately 23.3% of total belt sales from fiscal 1991 through
fiscal 1998. In fiscal 1998, sales of men's and boys' belts represented $55.7
million, or 70.2% of total belt sales, and women's and girls' belts represented
$23.7 million, or 29.8% 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, Greg Norman
Collection, Rolfs, Haggar, Bugle Boy, Canterbury, Prince Gardner, Princess
Gardner and Amity, as well as private brands. The recent purchase of the Amity
and Rolfs tradenames supports the Company's brand development strategy and
provides strong additions to its brand portfolio. Management believes that the
Company's future results will benefit 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
$21.7 million, or 16% of Tandy Brands' net sales in fiscal 1998. In fiscal 1998,
sales of men's and boys' small leather goods represented $7.6 million, or 35% of
total small leather goods sales, and women's and girls' small leather goods
represented $14.1 million, or 65% 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 1998, Tandy Brands' sales of other accessories
totaled $34 million, or 25.2% of its net sales.
EXCLUSIVE LICENSE AGREEMENTS
Tandy Brands has been awarded exclusive license agreements for several well
recognized brands, including Jones New York, Greg Norman Collection, 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 1998, sales of the Company's licensed products
accounted for approximately 14% of the Company's net sales, with no sales
associated with any individual license agreement accounting for more than five
percent of net sales. The Company maintains excellent relationships with its
licensors, as evidenced by recent license renewals, licensed territory
expansions and product line extensions.
4
<PAGE> 5
PRIVATE BRAND PRODUCTS
In fiscal 1998, private brand products accounted for approximately $78.2
million, or 58% 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.
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 $37.8 million, or 28% of the Company's net sales in fiscal 1998.
CUSTOMERS
During fiscal 1998, the Company supplied over 10,000 retailers representing
over 20,000 retail locations. 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 1998, Wal-Mart represented 43% of the Company's net sales. In fiscal
1998, the Company's top ten customers accounted for approximately 66% of net
sales.
The Company had firm backlog orders for fiscal years 1998 and 1997 totaling
$8,004,000 and $6,257,000, respectively. Shipment of backlog orders in fiscal
1998 is subject to product availability prior to customer order cancellation
dates.
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, electronic data interchange
("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, 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 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.
5
<PAGE> 6
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 1998, the Company
sourced certain finished products representing approximately 79% 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.
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 4.8 million belts per year. During fiscal 1998, Tandy Brands'
manufacturing facilities operated at approximately 88% 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.
6
<PAGE> 7
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 986 employees as of June 30, 1998. The Company
believes that employee relations are generally good. Approximately 80 of the
Company's employees are subject to a collective bargaining agreement. In
addition, the United Paperworkers International Union, which represented certain
of the Company's employees who were formerly subject to a collective bargaining
agreement when they were employed by AR Accessories Group, Inc., requested that
the Company bargain concerning the employment terms and conditions of the
employees of the Company's West Bend, Wisconsin distribution facility. The
Company has responded that it does not believe that the union represent a
majority of the distribution facility employees. The union has not yet replied
to the Company's response.
7
<PAGE> 8
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 and San Francisco, California. 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,
1998, was as follows:
<TABLE>
<CAPTION>
Approximate Square Feet
-------------------------------
Owned Leased Total
------- ------- -------
<S> <C> <C> <C>
Warehouse and Office 413,000 165,000 578,000
Factory 63,000 42,000 105,000
------- ------- -------
Total 476,000 207,000 683,000
======= ======= =======
</TABLE>
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 1998
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 1998 fiscal year.
8
<PAGE> 9
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 24 of the Company's l998 Annual Report to Stockholders,
which information is incorporated herein by reference.
(b) The approximate number of record holders of common stock on September 4,
l998, was 1,111.
(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.
9
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item appears on page 24 of the 1998
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 21 through 23 of
the l998 Annual Report to Stockholders, which information is incorporated herein
by reference.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not believe market risks related to its financial
instruments, principally debt, are material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears on pages 7 through 24 of
the 1998 Annual Report to Stockholders, which information is incorporated herein
by reference. Following is a cross reference for location of the requested
information:
<TABLE>
<CAPTION>
Page Number in
the
Tandy Brands
Accessories,
Inc.
1998 Annual
Report to
Stockholders
-----------------
<S> <C>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income for the Years Ended
June 30, 1998, 1997 and 1996 7
Consolidated Balance Sheets at June 30, 1998 and 1997 8
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998, 1997 and 1996 9
Consolidated Statements of Stockholders' Equity for
the Years Ended June 30, 1998, 1997 and 1996 10
Notes to Consolidated Financial Statements 11-19
Selected Unaudited Quarterly Financial Data 19
Report of Independent Auditors 20
Selected Financial Data 24
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
10
<PAGE> 11
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 l998 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 l998 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 l998 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
11
<PAGE> 12
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 7
through 24 of the Company's 1998 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, 1998,
Schedule II -- Valuation and Qualifying Accounts
The financial statement schedule should be read in conjunction
with the consolidated financial statements in the Company's 1998
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.
The Company filed a Form 8-K on June 19, 1998 regarding the purchase
of certain assets of AR Accessories Group, Inc. through an auction
held in the Bankruptcy Court for the Eastern District of Wisconsin.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, 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
-------------------------------------
Date: September 21, 1998 J.S.B. JENKINS
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
l934, this has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ Dr. James Gaertner Director and September 21, 1998
- ---------------------------------------- Chairman of the Board
Dr. James Gaertner
/s/ J.S.B.Jenkins Director September 21, 1998
- ----------------------------------------
J.S.B. Jenkins
/s/ Marvin J. Girouard Director September 21, 1998
- ----------------------------------------
Marvin J. Girouard
/s/ C. A. Rundell, Jr. Director September 21, 1998
- ----------------------------------------
C. A. Rundell, Jr.
/s/ Robert E. Runice Director September 21, 1998
- ----------------------------------------
Robert E. Runice
/s/ Gene Stallings Director September 21, 1998
- ----------------------------------------
Gene Stallings
/s/ Maxine Clark Director September 21, 1998
- ----------------------------------------
Maxine Clark
/s/ Stanley T. Ninemire Senior Vice President and September 21, 1998
- ---------------------------------------- Chief Financial Officer
Stanley T. Ninemire
</TABLE>
13
<PAGE> 14
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, 1998 and 1997, and for each of
the three years in the period ended June 30, 1998, and have issued our report
thereon dated August 7, 1998, 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 7, 1998
14
<PAGE> 15
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
Additions
Balance at -------------------------------------- Balance at
Beginning Charged to Costs Charged to Other End of
Description of Period And Expenses Accounts Deductions (1) Period
- ----------- ---------- ---------------- ---------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
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
1996
Allowance for
Doubtful Accounts
and Returns $520,000 $ 343,000 $-0- $ 257,000 $ 606,000
</TABLE>
(1) Represents uncollectable accounts written off, net of recoveries.
15
<PAGE> 16
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Reference
(if applicable)
------------------------------------------------
Exhibit Number and Description Form Date File No. Exhibit
- ------------------------------ ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
(3) Articles of Incorporation
and by-laws
3.1 Certificate of Incorporation
of Tandy Brands S-1 11/02/90 33-37588 3.1
Accessories, Inc.
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
</TABLE>
<PAGE> 17
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Reference
(if applicable)
------------------------------------------------
Exhibit Number and Description Form Date File No. Exhibit
- ------------------------------ ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
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
*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
</TABLE>
* Management compensatory plan.
<PAGE> 18
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Reference
(if applicable)
------------------------------------------------
Exhibit Number and Description Form Date File No. Exhibit
- ------------------------------ ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
*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
</TABLE>
* Management compensatory plan.
<PAGE> 19
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Reference
(if applicable)
------------------------------------------------
Exhibit Number and Description Form Date File No. Exhibit
- ------------------------------ ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
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
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 10.23
10.25 Promissory Note between
Tandy Brands Accessories,
Inc. and NationsBank, N.A.
dated as of May 16, 1998
and Amendment thereto. N/A N/A N/A N/A
10.26 Registration Statement
dated August 12, 1998
of Tandy Brands
Accessories, Inc. Common
Stock. S-3 08/12/98 333-61235 99.3
(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
</TABLE>
* Management compensatory plan.
<PAGE> 20
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Reference
(if applicable)
------------------------------------------------
Exhibit Number and Description Form Date File No. Exhibit
- ------------------------------ ---- ---- -------- -------
<S> <C> <C> <C> <C> <C>
(27) Financial Data Schedule
27.1 Financial Data Schedule
for the year ended
June 30, 1998 N/A N/A N/A N/A
27.2 Restated Financial Data
Schedule for the year
ended June 30, 1997 N/A N/A N/A N/A
</TABLE>
* Management compensatory plan.
<PAGE> 1
EXHIBIT 10.25
PROMISSORY NOTE
Date: May 16, 1998
Amount: $15,000,000.00 New
Bank: Borrower:
NationsBank, N.A: Tandy Brands Accessories, Inc.
690 East Lamar Blvd., Suite 200
Banking Center: Arlington, Texas 76011
Fort Worth
500 West Seventh Street
Fort Worth, Texas 76102-4700
Tarrant County Tarrant County
FOR VALUE RECEIVED, the undersigned Borrower unconditionally promises to pay to
the order of NationsBank, N.A., its successors and assigns, without setoff, at
its offices indicated at the beginning of this Note, or at such other place as
may be designated by Bank, the principal amount of fifteen million dollars
($15,000,000.00), or so much thereof as may be advanced from time to time in
immediately available funds, together with interest computed daily on the
outstanding principal balance hereunder, at an annual interest rate, and in
accordance with the payment schedule, indicated below.
1. RATE.
See "Exhibit A, Interest Rate Option Provisions", attached hereto and
made a part hereof by reference.
Notwithstanding any provision of this Note, Bank does not intend to
charge and Borrower shall not be required to pay any amount of interest or
other charges in excess of the maximum permitted by applicable law. Borrower
agrees that during the full term hereof, the maximum lawful interest rate for
this Note as determined under Texas law shall be the indicated rate ceiling as
specified in Section 303 of the Texas Finance Code. Further, to the extent that
any other lawful rate ceiling exceeds the rate ceiling so determined then the
higher rate ceiling shall apply. Any payment in excess of such maximum shall be
refunded to Borrower or credited against principal, at the option of Bank.
2. ACCRUAL METHOD. Interest at the Rate set forth above will be
calculated by the actual/360 day method (a daily amount of interest is computed
for a hypothetical year of 360 days; that amount is multiplied by the actual
number of days for which any principal is outstanding hereunder).
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate
will change, unless otherwise provided, each time and as of the date that the
index or base rate changes. In the event any index is discontinued, Bank shall
substitute an index determined by Bank to be comparable, at its sole
discretion.
<PAGE> 2
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied
first to the payment of any expense or charges payable hereunder or under any
other loan documents executed in connection with this Note, then to interest
due and payable, with the balance applied to principal, or in such other order
as Bank shall determine at its option.
See "Exhibit A Interest Rate Option Provisions", attached hereto and
made a part hereof by reference.
5. REVOLVING FEATURE. Borrower may borrow, repay and reborrow hereunder
at any time, up to a maximum aggregate amount outstanding at any one time equal
to the principal amount of this Note, provided, that Borrower is not in default
under any provision of this Note, any other documents executed in connection
with this Note, or any other note or other loan documents now or hereafter
executed in connection with any other obligation of Borrower to Bank, and
provided that the borrowings hereunder do not exceed any borrowing base or other
limitation on borrowings by Borrower. Bank shall incur no liability for its
refusal to advance funds based upon its determination that any conditions of
such further advances have not been met. Bank records of the amounts borrowed
from time to time shall be conclusive proof thereof.
6. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor
hereof, or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any
Obligor in connection with the delivery, acceptance, performance, default or
enforcement of this Note, any endorsement or guaranty of this Note, or any
other documents executed in connection with this Note or any other note or
other loan documents now or hereafter executed in connection with any
obligation of Borrower to Bank (the "Loan Documents"); (b) consent to all
delays, extensions, renewals or other modifications of this Note or the Loan
Documents, or waivers of any term hereof or of the Loan Documents, or release
or discharge by Bank of any of Obligors, or release, substitution or exchange
of any security for the payment hereof, or the failure to act on the part of
Bank, or any indulgence shown by Bank (without notice to or further assent from
any of Obligors), and agree that no such action, failure to act or failure to
exercise any right or remedy by Bank shall in any way affect or impair the
obligations of any Obligors or be construed as a waiver by Bank of, or
otherwise affect, any of Bank's rights under this Note, under any endorsement
or guaranty of this Note or under any of the Loan Documents; and (c) agree to
pay, on demand, all costs and expenses of collection or defense of this Note or
of any endorsement or guaranty hereof and/or the enforcement or defense of
Bank's rights with respect to, or the administration, supervision,
preservation, or protection of, or realization upon, any property securing
payment hereof, including, without limitation, reasonable attorney's fees,
including fees related to any suit, mediation or arbitration proceeding, out of
court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
7. PREPAYMENTS. Prepayments may be made in whole or in part at any time
on any loan for which the Rate is based on the Prime Rate. All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion. No prepayment of any
other loan shall be permitted without the prior written consent of Bank.
Notwithstanding such prohibition, if there is a prepayment of any
<PAGE> 3
such loan, whether by consent of Bank, or because of acceleration or otherwise,
Borrower shall, within 15 days of any request by Bank, pay to Bank any loss or
expense which Bank may incur or sustain as a result of such prepayment. For the
purposes of calculating the amounts owed only, it shall be assumed that Bank
actually funded or committed to fund the loan through the purchase of an
underlying deposit in an amount and for a term comparable to the loan, and
such determination by Bank shall be conclusive, absent a manifest error in
computation.
8. EVENTS OF DEFAULT. The following are events of default hereunder: (a)
the failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Obligor to Texas Commerce
Bank, N.A.; (c) the commencement of a proceeding against any Obligor for
dissolution or liquidation, the voluntary or involuntary termination or
dissolution of any Obligor or the merger or consolidation of any Obligor with
or into another entity in which the Obligor is not the surviving entity; (d)
the insolvency of, the business failure of, the appointment of a custodian,
trustee, liquidator or receiver for or for any of the property of, the
assignment for the benefit of creditors by, or the filing of a petition under
bankruptcy, insolvency or debtor's relief law or the filing of a petition for
any adjustment of indebtedness, composition or extension by or against any
Obligor; (e) the determination by Bank that any material representation or
warranty made to Bank by any Obligor in any Loan Documents or otherwise is or
was, when it was made, untrue or materially misleading; and (f) the failure of
any Obligor to timely deliver such financial statements, including tax returns,
other statements of condition or other information, as Bank shall reasonably
request from time to time.
9. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a)
the entire balance outstanding hereunder and all other obligations of any
Obligor to Bank (however acquired or evidenced) shall, at the option of Bank,
become immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligors a right to cure any default. At
Bank's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the principal
balance, and interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of principal and interest is paid in full. Upon a default under this Note, Bank
is hereby authorized at any time, at its option and without notice or demand,
to set off and charge against any deposit accounts of any Obligor, (as well as
any money, instruments, securities, documents, chattel paper, credits, claims,
demands, income and any other property, rights and interests of any Obligor),
which at any time shall come into the possession or custody or under the
control of Bank or any of its agents, affiliates or correspondents, any and all
obligations due hereunder. Additionally, Bank shall have all rights and
remedies available under each of the Loan Documents, as well as all rights and
remedies available at law or in equity.
<PAGE> 4
10. NON-WAIVER. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof,
nor shall it be a bar to the exercise of any of its options or rights at a
later date. All rights and remedies of Bank shall be cumulative and may be
pursued singly, successively or together, at the option of Bank. The acceptance
by Bank of any partial payment shall not constitute a waiver of any default or
of any of Bank's rights under this Note. No waiver of any of its rights
hereunder, and no modification or amendment of this Note, shall be deemed to
be made by Bank unless the same shall be in writing, duly signed on behalf of
Bank; each such waiver shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Obligors to Bank in any other respect at any other time.
11. APPLICABLE LAW, VENUE AND JURISDICTION. Borrower agrees that this Note
shall be deemed to have been made in the State of Texas at Bank's address
indicated at the beginning of this Note and shall be governed by, and construed
in accordance with, the laws of the State of Texas, and is performable in the
City and County of Texas indicated at the beginning of this Note. In any
litigation in connection with or to enforce this Note or any endorsement or
guaranty of this Note or any Loan Documents, Obligors, and each of them,
irrevocably consent to and confer personal jurisdiction on the courts of the
State of Texas or the United States courts located within the State of Texas.
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available under applicable
law.
12. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Note shall not affect the enforceability or validity of any
other provision herein and the invalidity or unenforceability of any provision
of this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
13. BINDING EFFECT. This Note shall be binding upon and inure to the
benefit of Borrower, Obligors and Bank and their respective successors,
assigns, heirs and personal representatives, provided, however, that no
obligations of Borrower or Obligors hereunder can be assigned without prior
written consent of Bank.
14. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or
is in any way incompatible with any other document related specifically to the
loan evidenced by this Note, this Note shall control over any other such
document, and if this Note does not address an issue, then each other such
document shall control to the extent that it deals most specifically with an
issue.
15. GOVERNING LAW. THE LOAN DOCUMENTS ARE PERFORMABLE IN TARRANT COUNTY,
TEXAS, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AND THE FEDERAL LAWS OF THE UNITED STATES OF
AMERICA. SECTION 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT
APPLY TO THE LOANS EVIDENCED BY THIS NOTE. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, BORROWER AGREES THAT THE COURTS OF THE STATE OF TEXAS SITTING IN
DALLAS, DALLAS COUNTY, TEXAS, AND THE FEDERAL COURTS SITTING IN DALLAS, DALLAS
COUNTY, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
<PAGE> 5
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS 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
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Borrower:
Tandy Brands Accessories, Inc.,
a Delaware corporation
By: /s/ STAN NINEMIRE
--------------------------------
Stan Ninemire, Chief
Financial Officer
(Corporate Seal)
Bank:
NationsBank N.A. (successor in interest by merger
to NationsBank of Texas, N.A.)
By:
--------------------------------
Vincent A. Liberio, Senior Vice
President
<PAGE> 6
EXHIBIT A
INTEREST RATE OPTION PROVISIONS
This Exhibit A is attached to and forms a part of that certain
promissory note (the "Note"), dated May 16, 1998 executed by Tandy Brands
Accessories, Inc., a Delaware corporation ("Borrower"), and made payable to
the order of NationsBank, N.A. ("Bank").
1. Borrower's Rates. On the terms and subject to the conditions
set forth below, Borrower will be able to select, from one of the
following Rate Options, an interest rate which will be applicable to a
particular dollar increment of amounts outstanding, or to be
disbursed, under the Note: [check the available options]
[o] The Prime Rate plus 0.00 (the "Prime Rate Option");
[ ] The Treasury Securities Rate plus _______ (the
"Treasury Securities Rate Option"); or
[o] The LIBOR Funding Rate, plus .75 (the "LIBOR Rate
Option");
[ ] The Eurodollar Rate, plus _______ (the "Eurodollar
Rate Option");
[ ] The CD Rate, plus ______ (the "CD Rate Option"); or
[o] The Quoted Rate, plus .75 (the "Quoted Rate Option");
[ ] The Transaction Rate of _______ (the "Transaction
Rate Option").
Interest based on the Prime Rate Option is a floating rate and will change on
and as of the date of a change in the Prime Rate. The period of time during
which the Prime Rate shall be applicable shall be a Prime Rate Interest Period.
Interest based on the Treasury Securities Rate Option will be fixed for periods
of __________ year(s) (each a "Treasury Securities Interest Period"). Interest
based on the LIBOR Rate Option will be fixed for periods of One, Two, Three or
Six Months (each a "LIBOR Interest Period"). Interest based on the Eurodollar
Rate Option will be fixed for periods of __________ (each a "Eurodollar
Interest Period"). Interest based on the CD Rate Option will be fixed for
periods of __________ (each a "CD Interest Period"). Interest based on the
Quoted Rate Option will be fixed for periods of __________ (each a "Quoted
Interest Period"). Interest based on the Transaction Rate Option will be fixed
for periods of __________ (each a "Transaction Interest Period"). The Treasury
Securities Rate, the LIBOR Rate, the Eurodollar Rate, the CD Rate, the Quoted
Rate, and the Transaction Rate each being hereafter from time to time referred
to as a "Fixed Rate Option").
2. Selection of Applicable Interest Rate.
(a) Request. Borrower may request (a "Rate Request") that
a $100,000.00 increment or any amount in excess thereof (an
"Increment") of the outstanding principal of, or amounts to be
disbursed under, the Note bear interest at the Prime Rate Option,
Treasury Securities Rate Option, the LIBOR Rate Option, the Eurodollar
Rate Option, the CD Rate Option, the Quoted Rate Option or the
Transaction Rate
<PAGE> 7
Option, as applicable, by telephonic notice no later than 10:00 a.m.
(Central time) a sufficient (in Bank's sole discretion) number of
Business Days prior to the effective date of the Rate Request to
permit Bank to quote the rate requested.
(b) Applicable Interest Rates. Borrower's Rate Request
will become effective, and interest on the Increment designated will
be calculated at the rate (the "Effective Rate") requested by Borrower
for the applicable Interest Period, subject to the following:
(i) Notwithstanding any Rate Request, interest
shall be calculated on the basis of the Prime Rate Option if
(a) Bank, in good faith, is unable to ascertain the requested
Fixed Rate Option by reason of circumstances then affecting
the applicable money market or otherwise, (b) it becomes
unlawful or impracticable for the Bank to maintain loans based
upon the requested Fixed Rate Option, or (c) Bank, in good
faith, determines that it is impracticable to maintain loans
based on the requested Fixed Rate Option because of increased
taxes, regulatory costs, reserve requirements, expenses or any
other costs or charges that affect such Interest Rate Options.
Upon the occurrence of any of the above events, any Increment
to which a requested Fixed Rate Option applies, shall be
immediately (or at the option of Bank, at the end of the
current Fixed Rate Interest Period), without further action of
Borrower or Bank, converted to an Increment to which the Prime
Rate Option applies.
(ii) Borrower may have no more than a total of 10
Effective Rates applicable to amounts outstanding under the
Note at any given time.
(iii) A Rate Request shall be effective as to
amounts to be disbursed under the Note only if, on the
effective date of the Rate Requests, such amounts are in fact
disbursed to or for the account of the Borrower in accordance
with the provisions of the Note and any related loan
documents.
(iv) Any amounts of outstanding principal for
which a Rate Request has not been made, or is otherwise not
effective, shall bear interest until paid in full at the Prime
Rate Option.
(v) Any amounts of outstanding principal bearing
interest based upon a Fixed Rate Option shall bear interest at
such rate until the end of the Interest Period therefor, and
thereafter shall bear interest based upon the Prime Rate
Option unless a new Rate Request for a Fixed Rate Option
complying with the terms hereof has been made and has become
effective.
(vi) If Borrower shall be in default under the
Note ("Default"), then Bank shall no longer be obligated to
honor any Rate Requests.
(vii) No Fixed Rate Interest Period shall extend
beyond the maturity date of the Note.
(c) Repayment. Principal shall be payable on May 14, 1999
and interest shall be payable as follows: [check all that apply]
<PAGE> 8
[o] For any Interest Period during which the
Prime Rate is applicable to any of the outstanding principal,
interest thereon shall be payable quarterly and continuing on
the same day of each successive month, quarter or other period
(as applicable) thereafter, with a final payment of all
accrued and unpaid interest on the last day of such Interest
Period.
[ ] For any Interest Period during which the
Quoted Rate is applicable to any of the outstanding
principal, interest thereon shall be payable _____________ and
continuing on the ___________ day of each successive month,
quarter or other period (as applicable) thereafter, with a
final payment of all accrued and unpaid interest on the last
day of such Interest Period.
[ ] For any Interest Period during which the
Transaction Rate is applicable to any of the outstanding
principal, interest thereon shall be payable _____________ and
continuing on the ____________ day of each successive month,
quarter or other period (as applicable) thereafter, with a
final payment of all accrued and unpaid interest on the last
day of such Interest Period.
[o] For any Interest Period during which the
LIBOR Funding Rate is applicable to any of the outstanding
principal, all accrued and unpaid interest thereon shall be
payable on the last day of each applicable Interest Period
and, in the case of an Interest Period greater than three
months, at three month intervals after the first day of such
Interest Period.
[ ] For any Interest Period during which the
Eurodollar Rate is applicable to any of the outstanding
principal, all accrued and unpaid interest thereon shall be
payable on the last day of each applicable Interest Period
and, in the case of an Interest Period greater than three
months, at three month intervals after the first day of such
Interest Period.
[ ] For any Interest Period during which the CD
Rate is applicable to any of the outstanding principal, all
accrued and unpaid interest thereon shall be payable on the
last day of each applicable Interest Period and, in the case
of an Interest Period greater than 90 days, at 90 day
intervals after the first day of such Interest Period.
[ ] For any Interest Period during which the
Treasuries Securities Rate is applicable to any outstanding
principal, interest thereon shall be payable ____________ and
continuing on the _____________ day of each successive month,
quarter or other period (as applicable) thereafter, with a
final payment of all accrued and unpaid interest on the last
day of such Interest Period.
3. Defined Terms. The following terms as used in this Exhibit A
shall have the following meanings:
"Business Day" shall mean a day on which Bank is open for
business and dealing in deposits in Fort Worth, Texas.
"Treasury Securities Rate" shall mean the rate of interest per
annum determined by Bank, in accordance with its customary general
practice from time to
<PAGE> 9
time, to be the weekly average yield on all United States Treasury
Securities adjusted to a constant maturity for a term comparable to
such Interest Period, as most recently reported by the Federal Reserve
System in the weekly Federal Reserve Statistical Release No.
H-15(519), entitled "Selected Interest Rates" (or any succeeding
publication) (the "Treasury Securities Rate") adjusted from time to
time in Bank's sole discretion for then applicable reserve
requirements, deposit insurance assessment rates and other regulatory
costs.
"CD Rate" shall mean the rate of interest per annum (rounded
upwards, if necessary, to the next higher 1/16 of 1%) determined by
Bank, in accordance with its customary general practice from time to
time, paid from time to time by major banks on negotiable certificates
of deposit (secondary market) in amounts of $100,000.00 or more for a
term comparable to such Interest Period, as most recently reported by
the Federal Reserve System in the weekly Federal Reserve Statistical
Release No. H-15(5191) entitled, "Selected Interest Rates" (or any
succeeding publication) (the "CD Rate") adjusted from time to time in
Bank's sole discretion for then applicable reserve requirements,
deposit insurance assessment rates and other regulatory costs.
"LIBOR Funding Rate" shall mean the rate of interest set by
Bank as the LIBOR Funding Rate as of and at any time during the second
Business Day immediately preceding the first day of such Interest
Period, for a term comparable to such Interest Period, as adjusted
from time to time in Bank's sole discretion for then applicable
reserve requirements, deposit insurance assessment rates and other
regulatory costs.
"Eurodollar Rate" shall mean the rate of interest set by Bank
as the Eurodollar Rate, as of and at any time during the second
Business Day immediately preceding the first day of such Interest
Period, for a term comparable to such Interest Period, as adjusted
from time to time in Bank's sole discretion for then applicable
reserve requirements, deposit insurance assessment rates and other
regulatory costs.
"Prime Rate" is the fluctuating rate of interest established
by Bank from time to time, at its discretion, whether or not such rate
shall be otherwise published. The Prime Rate is established by Bank as
an index and may or may not at any time be the best or lowest rate
charged by Bank on any loan.
"Quoted Rate" shall, mean a fixed rate of interest per annum
agreed upon by the Bank and Borrower on or prior to the first day of
the Interest Period for which such rate shall be in effect.
"Transaction Rate" shall mean the fixed rate of _________% per
annum.
4. Notices; Authority to Act. Borrower acknowledges and agrees
that the agreement of Bank herein to receive certain notices by
telephone is solely for the convenience of Borrower. Bank shall be
entitled to rely on the authority of the person purporting to be a
person authorized by Borrower to give notice, and Bank shall have no
liability to Borrower on account of any action taken by Bank in
reliance upon such telephonic notice. The obligation of Borrower to
repay all sums owing under the Note shall not be affected in any way
or to any extent by any failure by Bank to receive written
confirmation of any telephonic notice or the receipt by Bank of a
confirmation which is at variance with the terms understood by Bank to
be contained in telephonic notice.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Exhibit A to
Note as of the 16th day of May, 1998.
BORROWER:
TANDY BRANDS ACCESSORIES, INC.
By: /s/ STAN NINEMIRE
--------------------------------------
Stan Ninemire, Chief Financial Officer
BANK:
NATIONSBANK TEXAS, N.A.
By:
--------------------------------------
Vincent A. Liberio, Senior Vice
President
Note: LIBOR and Eurodollar should be quoted in terms of months (i.e., one,
two, three or six months) and not days (i.e., 30, 60, 90 or 180 days).
There is no automatic way to accrue interest on Quoted Rate or
Transaction Rate; calculations must be done manually.
<PAGE> 11
AMENDMENT
TO
PROMISSORY NOTE
This Amendment To Promissory Note (this "Amendment") is made by and
between Tandy Brands Accessories, Inc., a Delaware corporation ("Borrower"),
and NationsBank, N.A. ("Bank").
WHEREAS, Borrower executed that one certain promissory note dated
May 16, 1998 in the amount of $15,000,000 payable to the order of Bank
("Note"); and
WHEREAS, the parties desire to correct the maturity date of the Note.
NOW THEREFORE, for good and valuable consideration, it is agreed as
follows:
1.
The first sentence of section 2(c) of Exhibit A of the Note is amended
to read as follows:
(c) Repayment. Principal shall be payable on May
14, 2000 and interest shall be payable as follows: [check all
that apply]
2.
Except as amended above, the terms of the Note are ratified and
confirmed and shall remain in full force and effect.
3.
This Amendment shall be binding upon and inure to the benefit of the
parties and their successors and assigns.
4.
THIS WRITTEN AGREEMENT REPRESENTS 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 UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Executed to be effective as of May 16, 1998.
BORROWER:
TANDY BRANDS ACCESSORIES, INC.,
a Delaware corporation
By: /s/ STAN NINEMIRE
-----------------------------------------
Stan Ninemire, Chief Financial Officer
(Corporate Seal)
BANK:
NATIONSBANK, N.A. (successor in interest by
merger to NationsBank of Texas, N.A.)
By: /s/ JAMES NEILL
-----------------------------------------
James Neill, Senior Vice President
<PAGE> 1
EXHIBIT 13.1
CANTERBURY
ROLFS
JONES NEW YORK
ANNUAL REPORT 1998
TANDY BRANDS ACCESSORIES, INC.
<PAGE> 2
The company continues to invest in technology and facilities which increase
rapid delivery capabilities to our customers, shown by our recent purchase of
this state-of-the-art distribution center located in West Bend, Wisconsin.
[PICTURES]
<PAGE> 3
LETTER TO SHAREHOLDERS
EXCELLENT FINANCIAL PERFORMANCE
Fiscal 1998 marked another exceptional year of achievement for Tandy Brands
Accessories, Inc. Net sales increased a dramatic 32% to $135 million for the
year, and net income increased 59% to $7.2 million, or $1.27 per share.
Importantly, the expansion of our existing lines of operation served as the
primary driver of this growth, demonstrating the potential of the company's
brand franchises and product development capability. Our Accessory Design Group
division, in particular, had another very strong year, broadening the company's
leadership in the women's accessory market through innovative merchandising and
product category additions. The strong contribution made by each of our
divisions this past year reflects the successful execution of our strategic
initiatives and the commitment of our entire organization to the achievement of
our financial goals.
[PICTURE]
SUCCESSFUL GROWTH STRATEGY
Our growth strategy continues to be based on increasing market share through
four objectives: the penetration of additional distribution channels with
existing products; the introduction of new products into both existing and new
channels; the development of brands; and the selective pursuit of acquisitions
that complement our core businesses.
During fiscal 1998, we achieved significant success implementing this strategy.
We increased our market penetration in department stores and broadened our
strong positions in the mass merchant and chain store channels. Our multi-level
brand strategy in both the women's and men's segments of our business has been a
crucial tool in this regard and is yielding outstanding results. Sales increases
in JONES NEW YORK, GREG NORMAN COLLECTION, PRINCESS GARDNER, CANTERBURY and
HAGGAR branded products expanded the company's moderate-level and upper-level
retail distribution. This expansion, along with the company's existing strength
in mass-market retail operations, gives across-the-board diversity and
opportunity for continued growth.
We also introduced several successful new product lines through our Accessory
Design Group division, notably women's scarves, hats, hair goods and children's
accessories. These product launches have been well received by both retailers
and consumers and deepen our reputation and capability as a turnkey accessories
provider. Continued sales of these new products as well as launches of new
products planned for fiscal 1999, including men's JONES NEW YORK belts and small
leather goods and private label cold weather accessories, offer significant
potential for future sales growth.
Finally, Tandy Brands Accessories, Inc. completed two meaningful acquisitions at
the end of fiscal 1998. The purchase of the AMITY and ROLFS trade names provides
us the most highly-recognized brands for men's and women's small leather goods.
Furthermore, our acquisition of Tiger Accessories, Inc. expands our market
penetration into the boys' and big men's markets. These purchases were made in
adherence to our commitment to non-dilutive acquisitions, and we are very
excited about the growth opportunities that these businesses should generate in
the coming years.
Supporting our growth strategy, the company continues to invest in
infrastructure and technology to deliver our products reliably and efficiently.
Our recent purchase of a highly automated small leather goods distribution
facility in West Bend, Wisconsin (facing page) demonstrates our priority of
increasing the company's competitive advantage in technology-based delivery
systems. The combination of strong brand names, high-value products and
state-of-the-art replenishment capabilities strongly entrenches our
relationships with our retail customers and places us at the forefront of
technology in our industry.
FUTURE GROWTH MOMENTUM
The results and accomplishments of this past year move us closer to our goal of
becoming the industry's premier supplier of fashion accessories and have
generated a high degree of momentum as we enter fiscal 1999. Specifically, we
are well positioned to increase our department store penetration through our
growing brand name portfolio, to become a dominant supplier of men's and women's
wallets, and to increase sales through the introduction of several exciting new
products in the coming year. Our past success and promising future result
directly from the capabilities of our enthusiastic, dedicated and talented team.
Their drive and passion have advanced Tandy Brands Accessories, Inc. to its
current position among the leaders in the fashion accessory business. We are
grateful to them, to our valued partners, to our board members and to all of our
shareholders for their continued trust and support.
/s/ JAMES F. GAERTNER /S/ J.S.B. JENKINS
(left) (right)
1
<PAGE> 4
[JONES NEW YORK PICTURE]
Jones New York is a dominant name in the world of women's apparel. Tandy Brands
Accessories, Inc. has translated the look and feel of the Jones New York brand
into a strikingly beautiful collection of women's handbags and personal leather
goods. The line is sold to better department stores throughout the United
States.
2
<PAGE> 5
[ACCESSORY DESIGN GROUP PICTURE]
The dramatic and profitable growth of the Accessory Design Group division is a
direct result of the creativity and dedication of the fashion-savvy ADG team.
Gathering fashion input from around the world, they translate concepts into high
volume product programs for the nation's largest retail organizations.
3
<PAGE> 6
[ROLFS PICTURES]
The Rolfs brand of personal leather goods for men and women provides Tandy
Brands Accessories, Inc. with a powerful advantage in the retail market. Long
known for its innovative design and functional features, Rolfs products have
been satisfying American consumers for over 80 years.
4
<PAGE> 7
[MEN'S AND WOMEN'S BELTS PICTURE]
As the company's largest product classification, men's and women's belts cover a
wide spectrum of styles, leathers, buckles, ornamentation and colors. As a key
fashion accent for men and women, the category continues to grow in importance.
5
<PAGE> 8
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 1998, cash flow increased to
$9.8 million from $6.1 million in 1997, or an annual growth rate of 60 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,
1998, the debt to total capital ratio increased to 46 percent compared to 27
percent for the prior year. The purchase of certain assets of AR Accessories
Group, Inc. and the acquisition of Tiger Accessories, Inc. during the fourth
quarter of fiscal 1998 increased our debt level which resulted in the company
exceeding its debt to total capital target.
LEVERAGE
Tandy Brands Accessories, Inc. continues to finance its growth primarily through
internal cash flow and the use of borrowed funds. At June 30, 1998, the company
had borrowings of $42.6 million under its bank lines of credit compared to $15.9
million in the prior year. It is anticipated, subject to market conditions, that
this debt will be repaid through future cash flows and proceeds from the planned
stock offering, 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 60 percent and its pre-tax, pre-interest return on
average operating assets was 21 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 1998, the company achieved an after-tax
return on average equity of 16 percent compared to a prior year performance of
12 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 61 percent was achieved for fiscal 1998.
Because a portion of the company's growth may continue to come from
acquisitions, the use of stock for some acquisitions could further accelerate
the company's average growth rate.
6
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Net sales ........................................ $ 135,041 $ 102,507 $ 86,694
Cost of goods sold ............................... 86,120 64,249 53,974
--------- --------- ---------
Gross margin .................................. 48,921 38,258 32,720
Selling, general and administrative expenses ..... 33,929 28,123 25,279
Depreciation and amortization .................... 1,990 1,750 2,103
Prince Gardner impairment write-off .............. -- -- 3,976
--------- --------- ---------
Total operating expenses ...................... 35,919 29,873 31,358
--------- --------- ---------
Operating income ................................. 13,002 8,385 1,362
Interest expense ................................. (1,517) (1,242) (1,267)
Royalty, interest and other income ............... 176 141 151
--------- --------- ---------
Income before provision for income taxes ......... 11,661 7,284 246
Provision for income taxes ....................... 4,424 2,720 145
--------- --------- ---------
Net income ................................. $ 7,237 $ 4,564 $ 101
========= ========= =========
Earnings per common share ........................ $ 1.30 $ .84 $ .02
========= ========= =========
Earnings per common share - assuming dilution .... $ 1.27 $ .83 $ .02
========= ========= =========
Common shares outstanding ........................ 5,576 5,451 5,328
========= ========= =========
Common shares outstanding - assuming dilution .... 5,682 5,483 5,351
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30,
1998 1997
------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................................. $ 283 $ 554
Accounts receivable, net of allowances of $1,116 and $1,076 ............... 27,565 15,210
Inventories ............................................................... 48,003 32,260
Other current assets ...................................................... 2,329 2,489
--------- ---------
Total current assets ................................................... 78,180 50,513
--------- ---------
Property, plant and equipment, at cost:
Buildings ................................................................. 6,563 2,446
Leasehold improvements .................................................... 1,399 855
Machinery and equipment ................................................... 8,148 6,351
--------- ---------
16,110 9,652
Accumulated depreciation .................................................. (5,355) (4,797)
--------- ---------
Net property, plant and equipment ...................................... 10,755 4,855
--------- ---------
Other assets:
Goodwill, net of accumulated amortization of $3,577 and $2,990 ............ 10,489 7,941
Other intangibles, net of accumulated amortization of $2,035 and $1,709 ... 7,739 1,175
Other noncurrent assets ................................................... 857 880
--------- ---------
Total other noncurrent assets .......................................... 19,085 9,996
--------- ---------
$ 108,020 $ 65,364
========= =========
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable .......................................................... $ 6,789 $ 3,180
Notes payable ............................................................. 7,600 --
Accrued payroll and bonuses ............................................... 2,817 1,867
Accrued expenses .......................................................... 4,640 2,112
--------- ---------
Total current liabilities .............................................. 21,846 7,159
--------- ---------
Other liabilities:
Notes payable ............................................................. 35,000 15,850
Other noncurrent liabilities .............................................. 333 226
--------- ---------
Total other liabilities ................................................ 35,333 16,076
--------- ---------
Commitments (Note 7)
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000 shares authorized; none issued ... -- --
Common stock, $1 par value; 10,000,000 shares authorized;
5,616,724 shares and 5,490,091 shares issued and outstanding
as of June 30, 1998 and 1997, respectively ............................. 5,617 5,490
Additional paid in capital ................................................ 20,374 18,732
Retained earnings ......................................................... 24,850 17,907
--------- ---------
Total stockholders' equity ............................................. 50,841 42,129
--------- ---------
$ 108,020 $ 65,364
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................................ $ 7,237 $ 4,564 $ 101
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Prince Gardner impairment write-off ......................................... -- -- 3,976
Depreciation ................................................................ 1,212 1,074 985
Amortization ................................................................ 934 849 1,222
Deferred taxes .............................................................. 295 (265) (607)
Other ....................................................................... (134) (76) (376)
Change in assets and liabilities, net of effects from acquisition:
Accounts receivable ......................................................... (6,049) (1,464) (466)
Accounts receivable purchased from AR Accessories Group, Inc. ............... (3,053) -- --
Inventories ................................................................. (7,517) (5,650) 3,600
Inventory purchased from AR Accessories Group, Inc. ......................... (5,137) -- --
Accounts payable ............................................................ 2,644 (1,444) 352
Accrued expenses ............................................................ 1,220 1,865 (1,320)
Other assets ................................................................ 441 276 (311)
-------- -------- --------
Net cash provided by (used for) operating activities .............................. (7,907) (271) 7,156
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ............................................... (2,449) (1,507) (796)
Sale of property and equipment .................................................... 233 192 234
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 ............................................ (18,593) (1,315) (562)
-------- -------- --------
Cash flows from financing activities:
Sale of stock to stock purchase program ........................................... 1,047 802 862
Exercise of employee stock options ................................................ 222 -- 21
Proceeds from borrowings .......................................................... 82,350 44,750 26,845
Payments under borrowings ......................................................... (57,390) (43,500) (35,722)
-------- -------- --------
Net cash provided by (used for) financing activities ................................. 26,229 2,052 (7,994)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................................. (271) 466 (1,400)
Cash and cash equivalents at beginning of year ....................................... 554 88 1,488
-------- -------- --------
Cash and cash equivalents at end of year ............................................. $ 283 $ 554 $ 88
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ....................................................................... $ 1,367 $ 1,179 $ 1,259
Income taxes ................................................................... 4,553 2,278 691
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
9
<PAGE> 12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 ................................. 5,257,458 $ 5,257 $ 17,280 $ 13,302
Sale of stock to the Tandy Brands Accessories, Inc. ......
Stock Purchase Program ................................ 117,384 117 745 --
Sale of unissued common stock to employees
for exercise of stock options ......................... 7,425 8 13 --
Foreign currency translation adjustment .................. -- -- -- 24
Net income ............................................... -- -- -- 101
--------- --------- --------- ---------
Balance at June 30, 1996 ................................. 5,382,267 5,382 18,038 13,427
Sale of stock to the Tandy Brands Accessories, Inc. ......
Stock Purchase Program ................................ 107,824 108 694 --
Foreign currency translation adjustment .................. -- -- -- (84)
Net income ............................................... -- -- -- 4,564
--------- --------- --------- ---------
Balance at June 30, 1997 ................................. 5,490,091 5,490 18,732 17,907
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 --
Foreign currency translation adjustment .................. -- -- -- (294)
Net income ............................................... -- -- -- 7,237
--------- --------- --------- ---------
Balance at June 30, 1998 ................................. 5,616,724 $ 5,617 $ 20,374 $ 24,850
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<PAGE> 13
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, 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,
catalogue 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:
<TABLE>
<CAPTION>
JUNE 30,
1998 1997
---------------------------
<S> <C> <C>
Raw materials ........ $ 8,489,000 $ 4,881,000
Work-in-process ...... 159,000 1,101,000
Finished goods ....... 39,355,000 26,278,000
----------- -----------
$48,003,000 $32,260,000
=========== ===========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are depreciated over the estimated useful lives of the
assets using the straight-line method and at the rates shown:
<TABLE>
<S> <C>
Buildings 3%
Leasehold improvements The lesser of the life of the lease or asset
Machinery and equipment 10% to 33 1/3%
</TABLE>
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.
11
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE l - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 CUSTOMERS
Consolidated net sales to Wal-Mart accounted for approximately 43%, 36%, and 35%
of the Company's sales in fiscal 1998, 1997 and 1996, respectively. No other
customers accounted for 10% or more of total revenues.
MAJOR SUPPLIER
During fiscal 1998, 1997 and 1996, the Company purchased inventory of
approximately $19,500,000, $18,900,000 and $13,000,000, respectively, from a
supplier who is controlled by a shareholder of the Company. The merchandise was
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.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings per Share." SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Dilutive earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where necessary, restated to conform to SFAS No. 128 requirements.
12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE l - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." 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, and 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. Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted. Effects of the adoption
of these statements during fiscal year 1999 will primarily be limited to the
form and content of the Company's disclosures and is not expected to materially
impact the Company's consolidated financial position or statements of income,
stockholders' equity and cash flows.
NOTE 2 - PRINCE GARDNER IMPAIRMENT WRITE-OFF
On April 4, 1994, the Company purchased for $7,690,000 certain assets of Prince
Gardner Incorporated ("PG") through a foreclosure sale held by PG's primary
secured lender. PG is a manufacturer and marketer of women's and men's small
leather goods. After a thorough review conducted in 1996 by management based
upon future estimated undiscounted cash flows, it was determined that future
cash flows would be insufficient to recover the Prince Gardner division's
goodwill and other intangibles. Accordingly, an impairment write-off of
$3,976,000 was recognized in the fourth quarter of fiscal 1996.
NOTE 3 - 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 including certain acquisition costs was provided by drawing on
existing bank lines. The related tradenames acquired through the auction of
approximately $6,005,000 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 $3,267,000 and
other intangibles related to 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:
<TABLE>
<CAPTION>
(Unaudited)
1998
---------------
<S> <C>
Net sales ....................................... $ 150,121,000
Net income ...................................... $ 7,867,000
Earnings per common share ....................... $ 1.41
Earnings per common share - assuming dilution ... $ 1.38
</TABLE>
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE 4 - EARNINGS PER SHARE
The following sets forth the computation of basic and diluted earnings per share
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997 1996
----------------------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income .............................................................. $7,237 $4,564 $ 101
====== ====== ======
Denominator:
Weighted average shares outstanding ..................................... 5,559 5,444 5,328
Contingently issuable shares ............................................ 17 7 --
------ ------ ------
Denominator for basic earnings per share - weighted-average shares ... 5,576 5,451 5,328
Effect of dilutive securities:
Employee stock options .................................................. 93 29 23
Director stock options .................................................. 13 3 --
------ ------ ------
Dilutive potential common shares ..................................... 106 32 23
Denominator for earnings per share assuming dilution - adjusted
weighted-average shares ................................................. 5,682 5,483 5,351
====== ====== ======
Earnings per share ......................................................... $ 1.30 $ .84 $ .02
====== ====== ======
Earnings per share - assuming dilution ..................................... $ 1.27 $ .83 $ .02
====== ====== ======
</TABLE>
Options to purchase 100,275 shares of common stock at prices ranging from $18.67
- - $19.75 per share were outstanding during fiscal year 1998 but were not
included in the computation of earnings per share - assuming dilution because
the options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
NOTE 5 - CREDIT ARRANGEMENTS
The Company has an unsecured line of credit with a bank for $30,000,000. Of this
amount, $20,000,000, which expires on April 30, 2000, is a committed facility
that requires the maintenance of certain financial covenants and the payment of
a commitment fee of 1/4% on the unused balance. The line may be used for
borrowings or letters of credit and bears interest at negotiated rates. The
remaining $10,000,000, which expires on April 30, 1999, is an uncommitted
facility that may be used for borrowings or letters of credit and bears interest
at various rates with short term durations. At June 30, 1998 and 1997, the
Company had total borrowings under such facilities of $22,600,000 and
$10,850,000, respectively, bearing interest at rates from 7% - 7.25%.
The Company has an unsecured line of credit with another bank for $35,000,000.
Of this amount, $15,000,000, which expires on May 14, 2000, is a committed
facility that requires the maintenance of certain financial covenants and the
payment of a commitment fee of 1/4% on the unused balance. The line may be used
for borrowings or letters of credit and bears interest at negotiated rates. The
remaining $20,000,000 is an uncommitted facility that may be used for borrowings
or letters of credit and bears interest at various rates with short term
durations subject to payment on demand by the respective bank. At June 30, 1998
and 1997, the Company had borrowings under the committed facility of $15,000,000
and $5,000,000, bearing interest at 7% and 6.44%, respectively. At June 30,
1998, the Company had borrowings under the uncommitted facility of $5,000,000,
bearing interest at 7%. At June 30, 1998 and 1997, the Company had letters of
credit under the uncommitted facility of $13,282,000 and $4,985,000,
respectively, which were used in conjunction with merchandise procurement. Given
that such lines of credit bear interest at floating market interest rates, the
fair value of amounts borrowed thereunder approximates carrying value.
14
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE 5 - CREDIT ARRANGEMENTS (continued)
The Company also has a Canadian line of credit for approximately $360,000
secured by a letter of credit from a U.S. bank.
At June 30, 1998 and 1997, there were no borrowings under this line of credit.
Under the above credit facilities, future payments required for debt maturities
will be $7,600,000 and $35,000,000 in fiscal years 1999 and 2000, respectively.
NOTE 6 - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable valuation ....... $ -- $ 348,000
Inventory valuation ................. 620,000 592,000
Goodwill and other intangibles ...... 520,000 569,000
Other, net .......................... 523,000 240,000
----------- -----------
Total deferred tax assets ........ 1,663,000 1,749,000
Deferred tax liabilities:
Accounts receivable valuation ....... (167,000) --
Depreciation ........................ (106,000) (64,000)
----------- -----------
Total deferred tax liabilities ... (273,000) (64,000)
----------- -----------
Net deferred tax asset ........ $ 1,390,000 $ 1,685,000
=========== ===========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Current:
Federal ................... $ 4,276,000 $ 2,722,000 $ 709,000
Foreign ................... 72,000 51,000 (66,000)
State and local ........... 371,000 212,000 109,000
----------- ----------- -----------
4,719,000 2,985,000 752,000
----------- ----------- -----------
Deferred:
Federal ................... (294,000) (254,000) (547,000)
State and local ........... (1,000) (11,000) (60,000)
----------- ----------- -----------
(295,000) (265,000) (607,000)
----------- ----------- -----------
Income tax provision ... $ 4,424,000 $ 2,720,000 $ 145,000
=========== =========== ===========
</TABLE>
The following table reconciles the statutory federal income tax rate to the
effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------
<S> <C> <C> <C>
Statutory rate ............................................. 34.0% 34.0% 34.0%
State and local taxes, net of federal income tax benefit ... 2.1% 1.8% 23.6%
Other, net ................................................. 1.8% 1.5% 1.3%
---- ---- ----
37.9% 37.3% 58.9%
==== ==== ====
</TABLE>
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE 7 - 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 1998, 1997 and 1996
totaled $1,184,000, $1,074,000 and $851,000, 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 1998, 1997 and 1996 totaled $1,382,000, $1,209,000,
and $909,000, respectively.
Future minimum rental and royalty commitments as of June 30, 1998, are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- -----------------------------------
<S> <C>
1999 ............... $2,210,000
2000 ............... 1,581,000
2001 ............... 1,146,000
2002 ............... 794,000
2003 ............... 785,000
Thereafter ......... 1,126,000
----------
$7,642,000
==========
</TABLE>
NOTE 8 - 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. Options are
generally exercisable annually at a rate of 20% per year beginning one year
after the grant date. At June 30, 1998 and 1997, the number of shares available
for grant were 315,317 and 107,317, respectively. The following table reflects
the employee stock option transactions subsequent to June 30, 1995:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
---------------------------
<S> <C> <C>
Outstanding at June 30, 1995 .... 346,631 $12.16
Options granted ................. -- --
Options exercised ............... (7,425) $ 2.74
Options canceled or expired ..... (52,602) $16.28
-------
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
=======
Exercisable at June 30, 1998 .... 246,792 $11.38
=======
</TABLE>
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE 8 - EMPLOYEE STOCK OPTIONS (continued)
The following table segregates outstanding options into groups based on price
ranges of less than and more than $10 per share:
<TABLE>
<CAPTION>
$2.07-$9.25 $10.33-$19.75
----------------------------
<S> <C> <C>
All outstanding options:
Number of shares................................. 189,276 246,603
Weighted-average exercise price.................. $6.40 $14.68
Weighted-average remaining contractual life...... 5.8 years 6.6 years
Exercisable options:
Number of shares................................. 102,276 144,516
Weighted-average exercise price.................. $5.55 $15.51
</TABLE>
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 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 1998 and 1997, the weighted-average grant date fair value
of such options was $8.13 and $4.25, respectively.
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 pro forma effects on net income for fiscal 1998, 1997 and 1996 are
not representative of the pro forma effect on net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1996. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Net income:
As reported ............................ $ 7,237 $ 4,564 $ 101
Pro forma .............................. $ 7,113 $ 4,527 $ 101
Earnings per share:
As reported ............................ $ 1.30 $ .84 $ .02
Pro forma .............................. $ 1.28 $ .83 $ .02
Earnings per share - assuming dilution:
As reported ............................ $ 1.27 $ .83 $ .02
Pro forma .............................. $ 1.25 $ .83 $ .02
</TABLE>
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE 9 - 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.
There were no shares issued to the directors during fiscal years 1998, 1997 and
1996. Amounts recorded as compensation expense related to the Deferral Plan for
fiscal 1998, 1997 and 1996 was $72,942, $98,395 and $15,327, respectively.
The Company offers other stock incentive plans for non-employee directors. In
conjunction with these plans, 67,972 options were outstanding as of June 30,
1998. The options range in price from $8.00 to $19.00 and are generally
exercisable at a rate of 20% per year beginning one year after the grant date.
During fiscal 1998, 23,227 options were exercised. Prior to fiscal 1998, there
were no options exercised.
NOTE 10 - 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, Inc. Employees Investment Plan. Under the Program, participants may
contribute 5% or l0% 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 $988,000, $952,000
and $692,000 in fiscal 1998, 1997 and 1996, respectively.
NOTE 11 - 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.
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
NOTE 11 - PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS (continued)
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 12 - SUBSEQUENT EVENT
On August 12, 1998, the Company filed a registration statement with the
Securities and Exchange Commission in connection with an offering of 1,900,000
shares of common stock, subject to market conditions. Of this amount, 1,732,500
shares are to be sold by the Company and 167,500 shares are to be sold by the
Tandy Brands Accessories, Inc. Employees Investment Plan. The proceeds from the
offering to be received by the Company are intended to be used for the repayment
of debt.
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, 1998, is set forth below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------------
<S> <C> <C> <C> <C>
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 (1) ....................... $ .35 $ .49 $ .25 $ .21
Earnings per common share - assuming dilution (1) ... $ .35 $ .48 $ .24 $ .21
Fiscal 1997
Net sales ........................................... $23,661 $29,879 $23,922 $25,045
Gross profit ........................................ 8,933 10,886 8,937 9,502
Income before income taxes .......................... 1,681 2,680 1,241 1,682
Net income .......................................... 1,063 1,700 745 1,056
Earnings per common share (1) ....................... $ .20 $ .31 $ .14 $ .19
Earnings per common share - assuming dilution (1) ... $ .20 $ .31 $ .14 $ .19
</TABLE>
(1) Reflects the effect of the adoption of SFAS No.128, "Earnings per Share."
19
<PAGE> 22
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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
/S/ ERNST & YOUNG LLP
Fort Worth, Texas
August 7, 1998
20
<PAGE> 23
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, GREG NORMAN COLLECTION, ROLFS, HAGGAR, BUGLE BOY, CANTERBURY, PRINCE
GARDNER, PRINCESS GARDNER, AMITY, ACCESSORY DESIGN GROUP and TIGER, as well as
private brands for major retail customers. The Company sells its products
through all major retail distribution channels throughout the United States and
Canada, including mass merchants, national chain stores, department stores,
men's and women's specialty stores, golf pro shops and catalogs.
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 1998, the Company purchased certain assets of AR Accessories Group,
Inc. and acquired Tiger Accessories, Inc. See Note 3. Although these two
purchases had an immaterial impact on fiscal 1998 results because they were
completed late in the year, the Company anticipates significant future growth in
sales and earnings as a result of these purchases in fiscal 1999.
Sales and cost of goods sold and selling, general and administrative expenses
for fiscal 1998 compared to the previous two fiscal years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997 1996
------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net sales ................................................................... $ 135,041 $ 102,507 $ 86,694
Net sales percentage increase over comparable prior period .................. 31.7% 18.2% 3.6%
Cost of goods sold .......................................................... $ 86,120 $ 64,249 $ 53,974
Cost of goods sold as a percentage of net sales ............................. 63.8% 62.7% 62.3%
Selling, general and administrative expenses ................................ $ 33,929 $ 28,123 $ 25,279
Selling, general and administrative expenses as a percentage of net sales ... 25.1% 27.4% 29.2%
</TABLE>
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
women's accessories sales increased $25.9 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. As a percentage
of sales, gross margins decreased 1.1% in fiscal 1998 compared to fiscal 1997.
This 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
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
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.
Depreciation and amortization expenses were approximately $2.0 million in fiscal
1998, compared to approximately $1.8 million in 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. Consistent with the prior year, 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.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES
Net sales increased $15.8 million, or 18.2%, in fiscal 1997 compared to fiscal
1996. The net sales increase during fiscal 1997 was attributable to additional
product sales through existing channels of distribution by the Company's women's
and men's accessory businesses which had percentage increases of 13.8% and 4.4%,
respectively.
GROSS MARGIN
Gross margins decreased 0.4% in fiscal 1997 as compared to fiscal 1996. This
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 product
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 as a percentage of net sales
decreased 1.8% in fiscal 1997. A portion of this decrease resulted from a larger
mix of women's product sales which, on a percentage of sales basis, incur lower
variable selling expenses than men's product sales. Other contributing factors
include decreased selling costs due to the consolidation of divisional sales
personnel and volume efficiencies generated by greater than planned sales.
Depreciation and amortization expenses were approximately $1.8 million in fiscal
1997, compared to approximately $2.1 million in fiscal 1996. The decrease in
fiscal 1997 of $0.3 million was largely the result of lower amortization expense
due to the write-down of the Prince Gardner ("PG") impaired goodwill recorded in
the fourth quarter of fiscal 1996. See Note 2.
The effective tax rates for fiscal 1997, fiscal 1996 and fiscal 1995 were 37.3%,
58.9% and 36.5%, respectively. The effective tax rate in fiscal 1997 returned to
historical trends increasing 0.8% compared to fiscal 1995 due to additional
state and local taxes. The increase in the effective tax rate in fiscal 1996 was
due primarily to the non-tax deductibility in certain states of the losses
associated with PG's operations and impaired asset write-offs.
Net income for fiscal 1997 was approximately $4.6 million, or $0.83 per diluted
share, compared to $0.1 million, or $0.02 per diluted share in fiscal 1996. The
increase in the fiscal 1997 net income was attributable to significant sales
increases, a decrease in depreciation and amortization expenses and a decrease
in selling, general and administrative expenses as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, the Company used cash flows from operating activities of
$7.9 million compared to a use of $0.3 million for fiscal 1997. This use of cash
from operating activities increased due to purchases of accounts receivable and
inventory of AR
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
Accessories Group, Inc. amounting to $8.2 million. Cash flows resulting from
increases in net income and accounts payable were offset by increases in
accounts receivable and inventory required to support the Company's higher
levels of sales activities.
The Company used cash for investing activities of $18.6 million in fiscal 1998
compared to $1.3 million in fiscal 1997. During the fourth quarter of fiscal
1998, the Company acquired the stock of Tiger Accessories, Inc. and purchased
property, equipment and trade names of AR Accessories Group, Inc. using cash of
$5.6 million and $10.8 million, respectively. See Note 3. The Company also
invested a total of $2.4 million in additional property and equipment. In order
to support its increasing sales during fiscal 1998, the Company expanded its
distribution facility in Yoakum, Texas, and its sales and support offices in
Arlington, Texas, and New York, New York. Capital expenditures were also made in
computer hardware and software to upgrade system hardware and implement a
distribution system application in each of the Company's distribution centers.
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 $65 million which
can be used for general corporate purposes including working capital
requirements, acquisition activities and funding letters of credit. See Note 5.
The Company also has a Canadian line of credit for approximately $360,000
secured by a letter of credit from a U.S. bank. As of June 30, 1998, the Company
had credit availability under its credit facilities of approximately $9.5
million.
On August 12, 1998, the Company filed a registration statement with the
Securities and Exchange Commission in connection with an offering of 1.9 million
shares of common stock which will be completed subject to market conditions. The
Company intends to use any proceeds it receives from the offering for repayment
of bank indebtedness. See Note 12. The Company plans to use future cash flows
from operations to reduce outstanding indebtedness and develop and expand
current operations. 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 utilized globally use only two digits to
identify a year in the date field. These programs, if not corrected, could fail
or create erroneous results by or at the year 2000. This year 2000 issue is
believed to affect virtually all companies and organizations, including the
Company. The Company has undertaken a program to address its exposure to year
2000 issues. The Company is currently testing its program modifications and
believes that its implementation plan will be successful. Although there can be
no assurance with respect thereto, the Company does not expect that the year
2000 issues (including the cost of the Company's compliance program as currently
estimated) will have a material adverse effect on the Company's financial
position or results of operations.
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.
23
<PAGE> 26
SELECTED FINANCIAL DATA
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997 1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales .......................................... $135,041 $102,507 $86,694 $83,721 $67,254
Gross profit ....................................... 48,921 38,258 32,720 32,829 26,666
Intangible asset impairment write-off (1) .......... -- -- 3,976 -- --
Operating income ................................... 13,002 8,385 1,362 7,431 8,252
Interest expense ................................... 1,517 1,242 1,267 1,048 214
Net income from continuing operations (2) .......... 7,237 4,564 101 4,195 5,363
Net income from continuing operations per share (3):
Earnings per share .............................. $ 1.30 $ 0.84 $ 0.02 $ 0.81 $ 1.06
Earnings per share - assuming dilution .......... $ 1.27 $ 0.83 $ 0.02 $ 0.80 $ 1.04
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998 1997 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital..................................... $ 56,334 $ 43,354 $ 34,082 $ 33,069 $ 27,858
Total assets........................................ 108,020 65,364 58,411 67,315 49,318
Long-term debt...................................... 35,000 15,850 12,400 16,650 8,000
Stockholders' equity................................ 50,841 42,129 36,847 35,839 33,573
</TABLE>
(1) See Note 2 for discussion of the Prince Gardner impairment write-off.
(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.
(3) The earnings per share amounts prior to June 30, 1998, have been restated
as required to comply with SFAS No. 128, "Earnings Per Share."
PRICE RANGE OF COMMON STOCK
Quoted by quarter for the two fiscal years ended June 30, 1998
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW FISCAL 1997 HIGH LOW
<S> <C> <C> <C> <C> <C>
September.............. $14.00 $ 9.50 September.............. $ 7.50 $6.50
December............... $18.00 $13.00 December............... $ 7.50 $6.00
March.................. $20.38 $15.50 March.................. $ 9.00 $6.00
June................... $19.63 $17.00 June................... $10.13 $8.00
</TABLE>
As of August 11, 1998, there were approximately 1,118 stockholders of record.
24
<PAGE> 27
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
President and Chief Executive Officer
Tyler Corporation
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.
[PICTURE]
TOP FROM LEFT: Mr. Runice, Mr. Stallings, Mr. Jenkins, Mr. Girouard,
BOTTOM FROM LEFT: Dr. Gaertner, Ms. Clark, Mr. Rundell
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 20, 1998
Hyatt Regency DFW
International Parkway
Inside Dallas/Fort 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, 1998, 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.
JONES NEW YORK is a trademark of Jones Investment Co. Inc. The Shark Logo and
GREG NORMAN COLLECTION are trademarks of Great White Shark Enterprises, Inc.
HAGGAR is a trademark of Haggar Corporation. BUGLE BOY is a trademark of Bugle
Boy Industries. All of these trademarks are used under license from their
respective owners by Tandy Brands Accessories, Inc. ROLFS, CANTERBURY, AMITY and
PRINCESS GARDNER are trademarks of Tandy Brands Accessories, Inc.
<PAGE> 28
PRINCESS GARDNER
AMITY
BUGLE BOY
[JONES NEW YORK]
[GREG NORMAN COLLECTION]
[ROLFS]
[HAGGAR]
[BUGLE BOY]
[CANTERBURY]
[AMITY (R)]
[PRINCESS GARDNER]
TANDY BRANDS ACCESSORIES, INC.
CORPORATE OFFICES
------------------------------
690 EAST LAMAR BOULEVARD
SUITE 200
ARLINGTON, TEXAS 76011
817-548-0090
www.tandybrands.com
<PAGE> 1
EXHIBIT 21
TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES
EXHIBIT (21): SUBSIDIARIES OF THE REGISTRANT
21.1 List of subsidiaries
<TABLE>
<CAPTION>
Subsidiaries of State or Other Jurisdiction of Names Under Which Such
the Registrant Incorporation or Organization Subsidiaries Do Business
- -------------- ----------------------------- ------------------------
<S> <C> <C>
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.
</TABLE>
<PAGE> 1
EXHIBIT 23
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 7, 1998, included
in the 1998 Annual Report to Stockholders of Tandy Brands Accessories, Inc.
We also consent to the incorporation by reference in the Registration Statements
on Form S-3 (No. 333-61235) and Form S-8 (Nos. 33-41262, 33-46814, 33-91996,
33-75114 and 333-8579) and in the related Prospectuses of (i) our report dated
August 7, 1998, with respect to the consolidated financial statements of Tandy
Brands Accessories, Inc. included in the 1998 Annual Report to Stockholders of
Tandy Brands Accessories, Inc. and (ii) our report dated August 7, 1998, with
respect to the financial statement schedule included in this Annual Report on
Form 10-K for the year ended June 30, 1998.
/s/ERNST & YOUNG LLP
Fort Worth, Texas
September 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS
ACCESSORIES, INC.'S JUNE 30, 1998, ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FILINGS. DOLLARS ARE IN
THOUSANDS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 283
<SECURITIES> 0
<RECEIVABLES> 28,681
<ALLOWANCES> 1,116
<INVENTORY> 48,003
<CURRENT-ASSETS> 78,180
<PP&E> 16,110
<DEPRECIATION> 5,355
<TOTAL-ASSETS> 108,020
<CURRENT-LIABILITIES> 21,846
<BONDS> 35,000
0
0
<COMMON> 5,617
<OTHER-SE> 45,224
<TOTAL-LIABILITY-AND-EQUITY> 108,020
<SALES> 135,041
<TOTAL-REVENUES> 135,041
<CGS> 86,120
<TOTAL-COSTS> 86,120
<OTHER-EXPENSES> 1,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,517
<INCOME-PRETAX> 11,661
<INCOME-TAX> 4,424
<INCOME-CONTINUING> 7,237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,237
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS
ACCESSORIES, INC.'S JUNE 30, 1997 FORM 10-K (RESTATED AS REQUIRED BY REGULATION
S-K ITEM 601(c)(2)(iii).) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K FILINGS. DOLLARS ARE IN THOUSANDS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 554
<SECURITIES> 0
<RECEIVABLES> 16,286
<ALLOWANCES> 1,076
<INVENTORY> 32,260
<CURRENT-ASSETS> 50,513
<PP&E> 9,652
<DEPRECIATION> 4,797
<TOTAL-ASSETS> 65,364
<CURRENT-LIABILITIES> 7,159
<BONDS> 15,850
0
0
<COMMON> 5,490
<OTHER-SE> 36,639
<TOTAL-LIABILITY-AND-EQUITY> 65,364
<SALES> 102,507
<TOTAL-REVENUES> 102,507
<CGS> 64,249
<TOTAL-COSTS> 64,249
<OTHER-EXPENSES> 1,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,242
<INCOME-PRETAX> 7,284
<INCOME-TAX> 2,720
<INCOME-CONTINUING> 4,564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,564
<EPS-PRIMARY> .84
<EPS-DILUTED> .83
</TABLE>
