1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 0-18927 TANDY BRANDS ACCESSORIES, INC. (Exact Name of Registrant as Specified in its Charter) A DELAWARE CORPORATION (State or other jurisdiction of incorporation or organization) 75-2349915 690 E. LAMAR BLVD., SUITE 200 (I.R.S. Employer ARLINGTON, TEXAS, 76011 Identification Number) (Address of Principal Executive Offices) (Registrant's Telephone Number, Including Area Code) (817) 548-0090 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS Common Stock, Par Value $1 Per Share Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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 5, 1997, through the National Market System of the National Association of Securities Dealers Automated Quotation System) was approximately $55,722,000. There were 5,538,052 shares of common stock, $1.00 par value per share, outstanding at September 5, 1997. DOCUMENTS INCORPORATED BY REFERENCE: (a) Annual Report to Stockholders for Fiscal Year Ended June 30, 1997 (incorporated by reference in Parts II and IV). (b) Definitive Proxy Statement for the Annual Meeting to be held October 16, 1997 (incorporated by reference in Part III). ================================================================================ 2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FORM 10-K PART I ITEM 1. BUSINESS. Tandy Brands Accessories, Inc. ("the Company") designs, purchases, manufactures and markets fine leather goods, accessories and neckwear for men, women and children. The Company was incorporated on November 1, 1990. However, the predecessor companies to its leather product manufacturing division ("Accessories") have been manufacturers and marketers of men's and boys' leather accessories for more than 50 years and of neckwear for more than 10 years. Men's accessories are marketed and manufactured through not only the Accessories division, but also through Canterbury and H.A. Sheldon. In addition to its men's accessories operations, the Company designs and markets women's and children's accessories through Accessory Design Group, Inc. ("ADG") and Prince Gardner ("PG"). The Company's merchandising strategy is to provide value to retailers and to the ultimate consumer through a wide range of quality products. The Company's largest selling products are belts and personal leather goods. Management estimates these items represented approximately 86%, 87%, and 88% of the Company's sales in fiscal 1997, 1996 and 1995, respectively. Neckwear, women's handbags, men's jewelry, shaving kits, umbrellas and other fashion accessories collectively accounted for the remaining sales. Accessories, Canterbury, HAS, PG and ADG sell their 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. PG sells primarily women's belts, handbags and small leather accessories. ADG's largest selling category is belts, followed by scarves, hosiery, hair goods, evening accessories and various other fashion accessories. Accessories manufactures and markets its leather goods primarily under the labels HICKOK(R), GREG NORMAN COLLECTION(R), PRINCE GARDNER(R), BUGLE BOY(R), TEX TAN(R), DUCKS UNLIMITED(R), DON LOPER of BEVERLY HILLS(R), JOHN WEITZ(R), JONES NEW YORK(R), HAGGAR(R) and various private store labels. Although Accessories' leather product lines include similar types of merchandise, Accessories tailors each line to appeal to the customer base of the specific channel of distribution. The HICKOK(R), BUGLE BOY(R), and JOHN WEITZ(R) lines are sold principally through national chain stores and mass merchandisers. The TEX TAN(R), GREG NORMAN COLLECTION(R), PRINCE GARDNER(R), DUCKS UNLIMITED(R), DON LOPER of BEVERLY HILLS(R), HAGGAR(R) and JONES NEW YORK(R) lines are sold primarily through men's specialty stores and department stores. TEX TAN(R) and DON LOPER of BEVERLY HILLS(R) goods are also sold to military retail operations. Neckwear is sold under the labels BARRY WELLS(R), DUCKS UNLIMITED(R), LUCARELLI(R), RHYNECLIFF(R), LE-BIL'S(R), HICKOK(R), JAMES B. FAIRCHILD(R), ORLEANS(R), CARLOS TOMASSINI(TM) and various private store labels, and is sold through the majority of Accessories' channels of distribution. ADG and PG products are marketed under various labels including PRINCE GARDNER(R), PRINCESS GARDNER(R), JONES NEW YORK(R), ACCESSORY DESIGN GROUP, and under various private store labels. Canterbury manufactures and markets its products under the CANTERBURY(R) label and various private store labels. HAS manufactures and markets its products under the label JONES NEW YORK(R), GREG NORMAN COLLECTION(R), HAGGAR(R), KODIAK(R), DICKIES(R) and various private store labels. The Company designs all of its leather products, women's accessories and neckwear. Generally, new product styles are introduced each Spring and Fall. Wallets and certain other accessories are less subject to seasonal tastes and fashion trends. In order to reduce its exposure to periods of economic decline, the Company has diversified its channels of distribution and increased sales to other mass merchandisers and national chain and discount stores. Wal-Mart is the Company's largest customer, representing 36%, 35% and 40% of its total sales for the fiscal years 2 3 ended June 30, 1997, 1996 and 1995, respectively. The Company has no long-term contracts with any of its customers and all accounts are subject to periodic reviews. The Company had firm backlog orders for fiscal years 1997 and 1996 totaling $6,257,000 and $5,056,000, respectively. Shipment of backlog orders in fiscal 1998 is subject to product availability prior to customer order cancellation dates. The Company's marketing strategy is to develop and maintain relationships with its retail accounts by emphasizing service and product value. The Company's accounts are developed through the efforts of senior management, regional managers, account executives and a sales organization of salespeople and independent sales representatives. Senior management, regional managers, and account executives are all utilized for concentrated, specialized selling to national chain stores, discount stores, major department stores and catalogue retailers. Salespeople are involved in selling and servicing most account types and are primarily responsible for selling to specialty stores. The Company adjusts the respective percentages of domestically manufactured and imported products and the sources of imported products, as appropriate, to reduce labor and material costs, to diversify its product lines and to reduce exposure to interruption of its product flow. ADG and PG import the majority of their product lines from various foreign sources. The Company's inventory constitutes approximately 49% of total assets and has historically turned over about twice a year. This is consistent with other companies in the small leather goods and accessories industries, with slight variations from year to year. This rate of turnover is due to the long lead times associated with the purchase of raw materials to manufacture belts and the Company's commitment to satisfy customers' rapid delivery requirements. The major raw materials for the Company's products are readily available from a variety of foreign and domestic sources. The Company's operating results are subject to seasonal variations as well as the status of the economy. Its sales and operating results are fairly consistent throughout the fiscal year, but there is generally a seasonal increase during the second fiscal quarter. Due to receipt of cash from seasonal sales peaks and payment terms granted certain customers of Accessories, cash receipts increases usually occur in December and June. Current financial resources (working capital and borrowing arrangements) and anticipated funds from operations are expected to be adequate to meet capital requirements in the year ahead. The Company owns the trademarks HICKOK(R), CANTERBURY(R), PRINCE GARDNER(R), PRINCESS GARDNER(R), LUCARELLI(R), RHYNECLIFF(R), DON LOPER of BEVERLY HILLS(R), CARLOS TOMASSINI(R), ORLEANS(R), BARRY WELLS(R), and LE-BIL'S(R). The PRINCE GARDNER(R), PRINCESS GARDNER(R) and CANTERBURY(R) trade names, as well as various trade names used by HAS, were purchased by the Company through the acquisition transactions. Additionally, the Company holds licenses to use the JONES NEW YORK(R), GREG NORMAN COLLECTION(R), BUGLE BOY(R), DUCKS UNLIMITED(R), HAGGAR(R), TEX TAN(R), JOHN WEITZ(R), and JAMES B. FAIRCHILD(R) trademarks. Generally, the license agreements require that the Company pay annual royalties, ranging from 2% to 10%, based on minimum sales quotas or sales. The terms of the agreements are typically 4 to 10 years, with options to extend the terms, provided certain sales or royalty minimums are achieved. For fiscal 1997, no license agreement sales accounted for 5% or more of the Company's net sales. COMPETITION The market for finished leather goods, neckwear and women's accessories is fragmented and highly competitive. There are numerous competitors who serve the same customers and markets as the Company. EMPLOYEES The Company had approximately 669 employees at June 30, 1997. In the opinion of the Company's management, employee relations are good. The Company's employees are not subject to a collective bargaining agreement. 3 4 ITEM 2. PROPERTIES. The Company owns and operates a facility in Yoakum, Texas, which is used for leather product manufacturing, product distribution and offices. This facility has the capacity to manufacture approximately 4.5 million belts in a year. During fiscal 1997, the Company's utilization averaged about 72%. The Company leases facilities in Scarborough, Canada, and the Dominican Republic which are used for the manufacturing of leather goods. Additionally, the Company leases warehouse space in Dallas, Texas, for ADG and office space in Arlington, Texas, for the corporate headquarters, ADG and PG. The Company has a renewal option for its office space in Arlington. In the opinion of management, the various corporate, ADG, PG, and HAS spaces are adequate and suitable for the particular use involved. The Yoakum, Texas manufacturing and distribution centers are considered adequate. The total space owned, leased and occupied by the Company as of June 30, 1997, was as follows: APPROXIMATE SQUARE FEET --------------------------- OWNED LEASED TOTAL ------- ------- ------- Warehouse and Office............................ 127,000 110,000 237,000 Factory......................................... 63,000 55,000 118,000 ------- ------- ------- Total........................................... 190,000 165,000 355,000 ======= ======= ======= ITEM 3. LEGAL PROCEEDINGS. The Company is not involved in any material pending legal proceedings, other than ordinary routine litigation incidental to the Company's business. No material legal proceedings were terminated during the fourth quarter of the 1997 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 1997 fiscal year. 4 5 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 1997 Annual Report to Stockholders, which information is incorporated herein by reference. (b) The approximate number of record holders of common stock on September 5, 1997, was 1,212. (c) The Company has not paid any cash dividends since its inception and does not intend to pay cash dividends in the foreseeable future. The Company presently intends to retain earnings for use in its business, although there are currently no restrictions on the Company's present or future ability to pay dividends. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item appears on page 24 of the 1997 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 20 through 23 of the 1997 Annual Report to Stockholders, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item appears on pages 6 through 24 of the 1997 Annual Report to Stockholders, which information is incorporated herein by reference. Following is a cross reference for location of the requested information: PAGE NUMBER IN THE TANDY BRANDS ACCESSORIES, INC. 1997 ANNUAL REPORT TO STOCKHOLDERS ----------------- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Statements of Income for the Years Ended June 30, 1997, 1996 and 1995................................... 6 Consolidated Balance Sheets at June 30, 1997 and 1996....... 7 Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995.............................. 8 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1997, 1996 and 1995.................. 9 Notes to Consolidated Financial Statements.................. 10-18 Selected Unaudited Quarterly Financial Data................. 18 Report of Independent Auditors.............................. 19 Selected Financial Data..................................... 24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 5 6 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 1997 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 1997 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 1997 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 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: (1) The financial statements listed in response to Item 8 of this Report have been incorporated herein by reference to pages 6 through 24 of the Company's 1997 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, 1997, Schedule II -- Valuation and Qualifying Accounts The financial statement schedule should be read in conjunction with the consolidated financial statements in the Company's 1997 Annual Report to Stockholders. Financial statement schedules not included in this Report have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits: A list of the exhibits required to be filed as part of this Report is set forth in the Index to Exhibits, which immediately precedes such exhibits and is incorporated herein by reference. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of fiscal 1997. 6 7 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TANDY BRANDS ACCESSORIES, INC. (Registrant) /s/ J.S.B. JENKINS ------------------------------------ J.S.B. Jenkins President and Chief Executive Date: September 24, 1997 Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. NAME POSITION DATE ---- -------- ---- /s/ CLAYTON E. NILES Director and Chairman September 24, 1997 - ----------------------------------------------------- of the Board Clayton E. Niles /s/ J.S.B. JENKINS Director September 24, 1997 - ----------------------------------------------------- J.S.B. Jenkins /s/ DR. JAMES GAERTNER Director September 24, 1997 - ----------------------------------------------------- Dr. James Gaertner /s/ C. A. RUNDELL, JR. Director September 24, 1997 - ----------------------------------------------------- C. A. Rundell, Jr. /s/ ROBERT E. RUNICE Director September 24, 1997 - ----------------------------------------------------- Robert E. Runice /s/ GENE STALLINGS Director September 24, 1997 - ----------------------------------------------------- Gene Stallings /s/ MAXINE CLARK Director September 24, 1997 - ----------------------------------------------------- Maxine Clark /s/ STANLEY T. NINEMIRE Senior Vice President and September 24, 1997 - ----------------------------------------------------- Chief Financial Officer Stanley T. Ninemire 7 8 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, 1997 and 1996, and for each of the three years in the period ended June 30, 1997, and have issued our report thereon dated August 7, 1997, 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, 1997 8 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED JUNE 30, ADDITIONS BALANCE AT ----------------------------------- BALANCE AT BEGINNING CHARGED TO COSTS CHARGED TO OTHER END OF DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD ----------- ---------- ---------------- ---------------- ------------- ---------- 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 1995 Allowance for Doubtful Accounts and Returns............... $379,000 $1,372,000 $-0- $1,231,000 $ 520,000 - --------------- (1) Represents uncollectable accounts written off, net of recoveries. 9 10 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT INDEX INCORPORATED BY REFERENCE (IF APPLICABLE) --------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT ------------------------------ ---- ---- -------- ------- (3) Articles of Incorporation and by-laws 3.1 Certificate of Incorporation of Tandy Brands Accessories, Inc.................... S-1 11/02/90 33-37588 3.1 3.2 By-laws of Tandy Brands Accessories, Inc........................................ S-1 11/02/90 33-37588 3.2 (4) Instruments defining the rights of security holders, including indentures 4.1 Certificate of Designations, Powers, Preferences, and Rights of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc.............. S-1 11/02/90 33-37588 4.1 4.2 Form of Common Stock Certificates of Tandy Brands Accessories, Inc.................... S-1 11/02/90 33-37588 4.2 4.3 Form of Preferred Share Purchase Rights Certificate of Tandy Brands Accessories, Inc........................................ S-1 11/02/90 33-37588 4.3 4.4 Rights Agreement dated November 7, 1990, between Tandy Brands Accessories, Inc. and First National Bank of Boston.............. S-1 11/02/90 33-37588 4.4 (10) Material Contracts 10.1 Form of Distribution Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc.......................... S-1 11/02/90 33-37588 10.1 10.2 Form of Service Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc......... S-1 11/02/90 33-37588 10.2 10.3 Form of Tax Sharing Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc.......................... S-1 11/02/90 33-37588 10.3 10.4 Form of Purchase Agreement dated December 31, 1990, between The Bombay Company, Inc. and Mr. J.S.B. Jenkins.................... S-1 11/02/90 33-37588 10.4 10.6 Tandy Brands Accessories, Inc. Stock Purchase Program.......................... S-1 11/02/90 33-37588 10.6 10.7 Tandy Brands Accessories, Inc. Employees Investment Plan........................... S-1 11/02/90 33-37588 10.7 *10.8 Tandy Brands Accessories, Inc. 1991 Stock Option Plan............................... S-1 11/02/90 33-37588 10.8 11 INCORPORATED BY REFERENCE (IF APPLICABLE) --------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT ------------------------------ ---- ---- -------- ------- *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 *10.14 Tandy Brands Accessories, Inc. Benefit Restoration Plan and related Trust Agreement and Amendments No. 1 and 2 thereto.................................. N/A N/A N/A N/A 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. Nonqualified 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. NonQualified 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 Texas Commerce Bank, N.A. dated as of June 30, 1994 and Amendments No. 1, 2 and 3 thereto........ N/A N/A N/A N/A 10.22 Credit Agreements between Tandy Brands Accessories, Inc. and NationsBank of Texas, N.A. dated as of May 16, 1997..... N/A N/A N/A N/A (11) Statement re computation of per share earnings 11.1 Earnings per share statement.............. N/A N/A N/A N/A (13) Annual Report to security holders, Form 10-Q or quarterly report to security holders 13.1 Annual Report to Stockholders of Tandy Brands Accessories, Inc................... N/A N/A N/A N/A 12 INCORPORATED BY REFERENCE (IF APPLICABLE) --------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT ------------------------------ ---- ---- -------- ------- (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 (27) Financial Data Schedule 27.1 Financial Data Schedule................... N/A N/A N/A N/A - --------------- * Management compensatory plan.