##### 



Exhibit 13
 
 2005 2005 Tandy Brands Accessories, Inc. Annual Report




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Tandy Brands Accessories offers an exciting array
of fashion-forward mens and womens accessories
for all walks of life. Our product offerings extend
across the fashion spectrum and can be found at
various retail levels, commanding a unique position
and image. Whether its a fast, trendy look or
more classic, traditional styling, we offer it in our
distinctive portfolio of branded merchandise.
BRA




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##### 



Financial Highlights
 Tandy Brands Accessories, Inc. and Subsidiaries  (dollars in thousands, except per share amounts)
 2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Net Sales
    
    $
    221,232
    
    
    $
    215,420
    
    
    $
    224,487Gross Margin
    
    
    81,233
    
    
    
    75,285
    
    
    
    78,088Operating Income
    
    
    7,386
    
    
    
    13,711
    
    
    
    15,371Net Income (1)
    
    
    3,987
    
    
    
    6,952
    
    
    
    7,011Diluted Earnings Per Share
    
    
    0.61
    
    
    
    1.09
    
    
    
    1.16Working Capital
    
    
    86,625
    
    
    
    80,684
    
    
    
    88,416Total Assets
    
    
    150,762
    
    
    
    134,623
    
    
    
    147,120Stockholders Equity
    
    
    105,430
    
    
    
    98,948
    
    
    
    89,188Book Value Per Share (2)
    
    
    16.04
    
    
    
    15.69
    
    
    
    14.82
 
 (1)
    
    Includes cumulative effect of accounting change for SFAS No. 142 of ($581), or ($0.10)
per diluted share, in 2003.(2)
    
    Book value per share is total stockholders equity
divided by the number of shares of stock issued and outstanding at
that date. 
 (PIE CHART)
    
    (PIE CHART)




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##### 



Chairmans Letter Even though our mens accessory business had very strong sales
results in 2005, increasing 18.5% over last year, it did not offset the
decrease in sales of womens accessories, resulting in lower than
expected annual profit for the company. Taking action to address this decrease in womens accessory sales,
we have merged our womens mass merchant and department store
businesses together to improve operational efficiency and divisional
financial performance. This reorganization will reduce expenses and
unify our womens accessory design and sales team, allowing one
division to take fashion trends to all channels of distribution. Current Year Successes As mentioned earlier, our mens accessory business had a very
successful year. Sales for several mens accessories product
categories increased this year. Although holiday 2005 retail gift sales
were lower than expected, our new ETON gift business exceeded our
original sales expectations. Also in 2005, we had successful launches
in two new product categories: mens neckwear and mens jewelry.
The company remains financially strong, with debt at the end
of the year of only $16 million. In 2005, the company met all its
working capital requirements out of normal cash flow and reduced
its acquisition debt by $4 million. We will continue to protect
our financial strength and use it to take advantage of growth
opportunities as they become available. Future Focus Fashion and brands continue to drive consumer demand. As you can
see throughout this annual report, our designers continue to bring
great fashion to our lines of mens, womens and childrens accessories.
Our fashion accessories are sold under a broad range of brands,
allowing us to sell our products to all channels of distribution  from
mass merchants to better department stores.

We continue to invest in technology, making our skill in mastering
and integrating technology in each part of our business a competitive
advantage for Tandy Brands. Our information technology and
operations teams are currently working with certain key customers
to support their distribution center carton labeling needs using
Radio Frequency
Identification (RFID).
RFID, which will
eventually replace bar
coding, has exciting
applications for product
tagging, as well as
inventory tracking in
distribution centers.
For more than 80 years, Tandy Brands has been successfully producing
high-quality fashion accessories for our customers. This history of
achievement is the result of the dedication and persistence of the people
who are Tandy Brands. Persistence is a quality that is important in
every aspect of our business  from sales to customer service and from
factory production to picking and packing our products. We celebrate
persistence in our corporate culture through our annual Persistence
Award. We congratulate this years award winners.
It is the commitment, excellence and persistence of all our associates
that will provide strong growth opportunities and a bright future for
Tandy Brands Accessories, Inc. James F. Gaertner Chairman of the Board J.S.B. Jenkins President and Chief Executive Officer




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##### 



We continue to invest in technology, making our skill in mastering
and integrating technology in each part of our business a competitive
advantage for Tandy Brands. Our information technology and
operations teams are currently working with certain key customers
to support their distribution center carton labeling needs using
Radio Frequency
Identification (RFID).
RFID, which will
eventually replace bar
coding, has exciting
applications for product
tagging, as well as
inventory tracking in
distribution centers.
For more than 80 years, Tandy Brands has been successfully producing
high-quality fashion accessories for our customers. This history of
achievement is the result of the dedication and persistence of the people
who are Tandy Brands. Persistence is a quality that is important in
every aspect of our business  from sales to customer service and from
factory production to picking and packing our products. We celebrate
persistence in our corporate culture through our annual Persistence
Award. We congratulate this years award winners.
It is the commitment, excellence and persistence of all our associates
that will provide strong growth opportunities and a bright future for
Tandy Brands Accessories, Inc.
James F. Gaertner
Chairman of the Board
J.S.B. Jenkins
President and Chief Executive Officer PERSISTENCE Persistence Awards presented at
the 2005 Planning Conference
Joan Barton
Sandy Clayton
Mark Flaherty
Clay Jenkins
Jim McMasters
Audrey Schaefer
Dan Weaver




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The Rolfs® brand conjures an image of timelessnessa
classic style full of variety. Rolfs® fashion accessories
offer exceptional styling, quality and value in both
mens and womens product lines.




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Providing sharp, sophisticated accessories for over 30
years, the Jones New York® brand conveys the image,
confidence and style of a success story in the making.




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Fun, casual, functional and ideal for an active lifestyle,
the Dockers® brand is all about letting loose and looking
great while on the move. Always trendy and in keeping
with the times, Dockers® fashion accessories are the
perfect fit for women on the go.




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The legacy of the Levis® brand lives on with the hip
style young adults have come to associate with one
of Americas most recognizable manufacturers.
This stylish, confident line of fashion accessories
can be found at favorite department stores, and is
always in tune with cool lifestyles.




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The young, energetic, casual image focuses on trends,
and the Levi Strauss Signature brand provides our
customers with the trendy fashion they demand at an
exceptional value and affordable price.




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##### 



Consolidated Statements of Income
 Tandy Brands Accessories, Inc. and Subsidiaries  (dollars in thousands, except per share amounts)
 Year Ended June 30,2005
    
    
    2004
    
    
    2003(As restated)
    
    
    ( As restated)Net sales
    
    $
    221,232
    
    
    $
    215,420
    
    
    $
    224,487Cost of goods sold
    
    
    139,999
    
    
    
    140,135
    
    
    
    146,399Gross margin
    
    
    81,233
    
    
    
    75,285
    
    
    
    78,088Selling, general and administrative expenses
    
    
    67,975
    
    
    
    57,519
    
    
    
    58,450Goodwill impairment
    
    
    847
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    5,025
    
    
    
    4,055
    
    
    
    4,267Total operating expenses
    
    
    73,847
    
    
    
    61,574
    
    
    
    62,717Operating income
    
    
    7,386
    
    
    
    13,711
    
    
    
    15,371Interest expense
    
    
    (1,222
    )
    
    
    (2,357
    )
    
    
    (2,833
    )Royalty and other income
    
    
    246
    
    
    
    128
    
    
    
    101Income before provision for income taxes and cumulative
effect of accounting change
    
    
    6,410
    
    
    
    11,482
    
    
    
    12,639Provision for income taxes
    
    
    2,423
    
    
    
    4,530
    
    
    
    5,047Net income before cumulative effect of accounting change
    
    
    3,987
    
    
    
    6,952
    
    
    
    7,592Cumulative effect of accounting change for SFAS No. 142,
net of
income taxes of $369,000
    
    
    
    
    
    
    
    
    
    
    (581
    )Net income
    
    $
    3,987
    
    
    $
    6,952
    
    
    $
    7,011Earnings per common share:Before cumulative effect of accounting change
    
    $
    0.63
    
    
    $
    1.12
    
    
    $
    1.28Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (0.10
    )$
    0.63
    
    
    $
    1.12
    
    
    $
    1.18Earnings per common share  assuming dilution:Before cumulative effect of accounting change
    
    $
    0.61
    
    
    $
    1.09
    
    
    $
    1.26Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (0.10
    )$
    0.61
    
    
    $
    1.09
    
    
    $
    1.16Dividends declared per share
    
    $
    0.11
    
    
    $
    0.10
    
    
    $
    Common shares outstanding
    
    
    6,349
    
    
    
    6,229
    
    
    
    5,952Common shares outstanding  assuming dilution
    
    
    6,588
    
    
    
    6,389
    
    
    
    6,046
 The accompanying notes are an integral part of these consolidated financial statements.




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##### 



Consolidated Balance Sheets
 Tandy Brands Accessories, Inc. and Subsidiaries  (dollars in thousands)
 June 30,2005
    
    
    2004(As restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,429
    
    
    $
    6,086Accounts receivable, net of allowances of $1,483 and $1,142
    
    
    31,437
    
    
    
    33,427Inventories
    
    
    67,981
    
    
    
    57,086Deferred income taxes
    
    
    4,229
    
    
    
    3,058Other current assets
    
    
    2,359
    
    
    
    1,613Total current assets
    
    
    109,435
    
    
    
    101,270Property, plant and equipment, at cost:Buildings
    
    
    8,272
    
    
    
    8,243Leasehold improvements
    
    
    2,901
    
    
    
    1,661Machinery and equipment
    
    
    26,569
    
    
    
    24,67737,742
    
    
    
    34,581Accumulated depreciation
    
    
    (23,896
    )
    
    
    (20,206
    )Net property, plant and equipment
    
    
    13,846
    
    
    
    14,375Other assets:Goodwill net of accumulated amortization of $6,851 and $7,143
    
    
    17,101
    
    
    
    11,655Other intangibles, net of accumulated amortization of $4,980 and $4,240
    
    
    6,403
    
    
    
    4,534Supplemental Executive Retirement Plan intangible asset
    
    
    1,702
    
    
    
    1,255Other noncurrent assets
    
    
    2,275
    
    
    
    1,534Total other noncurrent assets
    
    
    27,481
    
    
    
    18,978$
    150,762
    
    
    $
    134,623Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    15,908
    
    
    $
    14,224Accrued payroll and bonuses
    
    
    3,558
    
    
    
    3,804Accrued expenses
    
    
    3,344
    
    
    
    2,558Total current liabilities
    
    
    22,810
    
    
    
    20,586Other liabilities:Notes payable
    
    
    16,055
    
    
    
    10,000Deferred income taxes
    
    
    2,086
    
    
    
    2,066Supplemental Executive Retirement Plan liability
    
    
    2,926
    
    
    
    1,721Other noncurrent liabilities
    
    
    1,455
    
    
    
    1,302Total other liabilities
    
    
    22,522
    
    
    
    15,089Commitments and contingencies (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;
6,573,166 shares and 6,305,886 shares issued and outstanding
as of June 30, 2005 and 2004, respectively
    
    
    6,573
    
    
    
    6,306Additional paid in capital
    
    
    29,597
    
    
    
    26,765Retained earnings
    
    
    70,164
    
    
    
    66,892Cumulative other comprehensive income (loss)
    
    
    77
    
    
    
    (121
    )Shares held by Benefit Restoration Plan Trust
    
    
    (981
    )
    
    
    (894
    )Total stockholders equity
    
    
    105,430
    
    
    
    98,948$
    150,762
    
    
    $
    134,623
 The accompanying notes are an integral part of these consolidated financial statements.
    
    
    
    15




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##### 



Consolidated
Statements of Cash Flows
 Tandy Brands Accessories, Inc. and Subsidiaries  (dollars in thousands)
 2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Cash flows from operating activities:Net income
    
    $
    3,987
    
    
    $
    6,952
    
    
    $
    7,011Adjustments to reconcile net income to net cash
provided by (used for) operating activities:Depreciation
    
    
    4,458
    
    
    
    3,863
    
    
    
    3,677Amortization
    
    
    732
    
    
    
    366
    
    
    
    503Amortization of debt origination costs
    
    
    127
    
    
    
    116
    
    
    
    269Deferred taxes
    
    
    (1,930
    )
    
    
    477
    
    
    
    30Income tax benefit of exercise of employee stock options
    
    
    216
    
    
    
    257
    
    
    
    Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    
    
    
    
    581Goodwill impairment
    
    
    847
    
    
    
    
    
    
    
    Other
    
    
    229
    
    
    
    90
    
    
    
    100Change in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    2,567
    
    
    
    8,245
    
    
    
    (7,973
    )Inventories
    
    
    (8,319
    )
    
    
    5,070
    
    
    
    (9,338
    )Other assets
    
    
    (1,476
    )
    
    
    (655
    )
    
    
    (122
    )Accounts payable
    
    
    1,641
    
    
    
    (298
    )
    
    
    1,767Accrued expenses
    
    
    1,477
    
    
    
    (1,470
    )
    
    
    1,503Net cash provided by (used for) operating activities
    
    
    4,556
    
    
    
    23,013
    
    
    
    (1,992
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,513
    )
    
    
    (3,118
    )
    
    
    (2,444
    )Purchase of SERP investments
    
    
    (850
    )
    
    
    
    
    
    
    Purchase of
Superior Merchandise, Inc.
    
    
    (10,000
    )
    
    
    
    
    
    
    Net cash used for investing activities
    
    
    (14,363
    )
    
    
    (3,118
    )
    
    
    (2,444
    )Cash flows from financing activities:Sale of stock to stock purchase program
    
    
    1,500
    
    
    
    1,640
    
    
    
    1,381Exercise of employee stock options
    
    
    1,092
    
    
    
    1,203
    
    
    
    363Dividends
    
    
    (691
    )
    
    
    (466
    )
    
    
    Proceeds from borrowings
    
    
    81,626
    
    
    
    36,950
    
    
    
    66,145Payments under borrowings
    
    
    (76,377
    )
    
    
    (56,950
    )
    
    
    (66,145
    )Net cash provided by (used for) financing activities
    
    
    7,150
    
    
    
    (17,623
    )
    
    
    1,744Net increase (decrease) in cash and cash equivalents
    
    
    (2,657
    )
    
    
    2,272
    
    
    
    (2,692
    )Cash and cash equivalents at beginning of period
    
    
    6,086
    
    
    
    3,814
    
    
    
    6,506Cash and cash equivalents at end of period
    
    $
    3,429
    
    
    $
    6,086
    
    
    $
    3,814Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    1,065
    
    
    $
    2,686
    
    
    $
    2,560Income taxes
    
    $
    3,371
    
    
    $
    4,717
    
    
    $
    4,662
 The accompanying notes are an integral part of these consolidated financial statements




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##### 



Consolidated
Statements of Stockholders Equity
 Tandy Brands Accessories, Inc. and Subsidiaries  (dollars in thousands)
 Cumulative
    
    
    Shares HeldAdditional
    
    
    
    
    
    
    Other
    
    
    by Benefit
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    Restoration
    
    
    Treasury Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income(Loss)
    
    
    Plan Trust
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance at June
30, 2002 (As
restated)
    
    
    5,899,173
    
    
    $
    5,899
    
    
    $
    22,690
    
    
    $
    53,552
    
    
    $
    (1,706
    )
    
    $
    
    
    
    
    (66,260
    )
    
    $
    (512
    )
    
    $
    79,923Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,011Other comprehensive
income:Currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    488Fair value of
interest rate swap,
net of tax of $13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,521Sale of stock to the
Tandy Brands
Accessories, Inc.Stock Purchase
Program
    
    
    72,941
    
    
    
    73
    
    
    
    796
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,260
    
    
    
    512
    
    
    
    1,381Sale of unissued
common stock to
employees
for exercise of
stock options
    
    
    44,587
    
    
    
    44
    
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342Sale of unissued
common stock to
directors
for exercise of
stock options
    
    
    2,585
    
    
    
    3
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Balance at June 30,
2003 (As restated)
    
    
    6,019,286
    
    
    
    6,019
    
    
    
    23,802
    
    
    
    60,563
    
    
    
    (1,196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,188Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,952Other comprehensive
income:Currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Fair value of
interest rate swap,
net of tax of $646.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,027Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (623
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (623
    )Shares held by
Benefit Restoration
Plan Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (894
    )
    
    
    
    
    
    
    
    
    
    
    (894
    )Sale of stock to the
Tandy Brands
Accessories, Inc.Stock Purchase
Program
    
    
    117,299
    
    
    
    118
    
    
    
    1,522
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,640Restricted stock
issued to officers
    
    
    22,800
    
    
    
    23
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275Restricted stock
issued to directors
    
    
    3,720
    
    
    
    4
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Unearned
compensation on
restricted stock
    
    
    
    
    
    
    
    
    
    
    (183
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (183
    )Sale of unissued
common stock to
employees
for exercise of
stock options
    
    
    140,320
    
    
    
    140
    
    
    
    1,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,436Sale of unissued
common stock to
directors
for exercise of
stock options
    
    
    2,461
    
    
    
    2
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Balance at June 30,
2004 (As restated)
    
    
    6,305,886
    
    
    
    6,306
    
    
    
    26,765
    
    
    
    66,892
    
    
    
    (121
    )
    
    
    (894
    )
    
    
    
    
    
    
    
    
    
    
    98,948Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,987
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,987Other comprehensive
income:Currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467Supplemental
Executive Retirement
Plan additional
minimum
liability, net
of tax of $158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (269
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (269
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,185Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (715
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (715
    )Shares held by
Benefit Restoration
Plan Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (87
    )
    
    
    
    
    
    
    
    
    
    
    (87
    )Sale of stock to the
Tandy Brands
Accessories, Inc.Stock Purchase
Program
    
    
    108,964
    
    
    
    109
    
    
    
    1,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500Restricted stock
issued to officers
    
    
    11,600
    
    
    
    12
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Restricted stock
issued to directors
    
    
    9,370
    
    
    
    9
    
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133Unearned
compensation on
restricted stock
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )Sale of unissued
common stock to
employees
for exercise of
stock options
    
    
    119,388
    
    
    
    119
    
    
    
    1,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,178Issue of deferred
stock shares to
directors
    
    
    3,608
    
    
    
    4
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34Sale of unissued
common stock to
directors
for exercise of
stock options
    
    
    14,350
    
    
    
    14
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130Balance at June 30,
2005
    
    
    6,573,166
    
    
    $
    6,573
    
    
    $
    29,597
    
    
    $
    70,164
    
    
    $
    77
    
    
    $
    (981
    )
    
    
    
    
    
    $
    
    
    
    $
    105,430
 The accompanying notes are an integral part of these consolidated financial statements.
    
    17




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 The Company and Basis of Presentation
    Restatement of Prior Period Financial Statements
  Reclassifications
  Cash and Cash Equivalents
  Inventories
   June 30,2005
    
    
    2004Raw materials
    
    $
    4,971,000
    
    
    $
    3,776,000Work-in-process
    
    
    1,154,000
    
    
    
    1,204,000Finished goods
    
    
    61,856,000
    
    
    
    52,106,000$
    67,981,000
    
    
    $
    57,086,000
 Property and Equipment
  Buildings
    
    3%Leasehold improvements
    
    The lesser of the life of the lease or assetMachinery and equipment
    
    10% to 50%




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Impairment of Long-Lived Assets
  Fair Values of Financial Instruments
  Goodwill and Other Intangibles
  Foreign Currency Translation
  Revenues and Cost of Goods Sold




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Major Customers
  Advertising Costs
  Stock-Based Compensation
  2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Net income:As reported
    
    $
    3,987
    
    
    $
    6,952
    
    
    $
    7,011Stock-based compensation expense
    
    
    256
    
    
    
    150
    
    
    
    Adjusted net income
    
    $
    4,243
    
    
    $
    7,102
    
    
    $
    7,011Compensation expense per SFAS No. 123
    
    
    (807
    )
    
    
    (625
    )
    
    
    (496
    )Pro forma
    
    $
    3,436
    
    
    $
    6,477
    
    
    $
    6,515Earnings per share:As reported
    
    $
    0.63
    
    
    $
    1.12
    
    
    $
    1.18Pro forma
    
    $
    0.54
    
    
    $
    1.04
    
    
    $
    1.09Earnings per share  assuming dilution:As reported
    
    $
    0.61
    
    
    $
    1.09
    
    
    $
    1.16Pro forma
    
    $
    0.52
    
    
    $
    1.01
    
    
    $
    1.08
   Derivative Instruments and Hedging Activities




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Impact of Recently Issued Accounting Standards
     NOTE 2  ACQUISITIONS
 ® ® ® ®




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 3  EARNINGS PER SHARE
  Year Ended June 30,2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Numerator for basic and diluted earnings per share:Net income before cumulative effect of accounting change
    
    $
    3,987
    
    
    $
    6,952
    
    
    $
    7,592Cumulative effect of accounting change for SFAS No. 142, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    (581
    )Net income
    
    $
    3,987
    
    
    $
    6,952
    
    
    $
    7,011Denominator:Weighted-average shares outstanding
    
    
    6,327
    
    
    
    6,208
    
    
    
    5,934Contingently issuable shares
    
    
    22
    
    
    
    21
    
    
    
    18Denominator for basic earnings per share  weighted-average shares
    
    
    6,349
    
    
    
    6,229
    
    
    
    5,952Effect of dilutive securities:Employee stock options
    
    
    212
    
    
    
    132
    
    
    
    78Director stock option
    
    
    27
    
    
    
    28
    
    
    
    16Dilutive potential common shares
    
    
    239
    
    
    
    160
    
    
    
    94Denominator for earnings per share  assuming dilution  adjusted
weighted-average shares
    
    
    6,588
    
    
    
    6,389
    
    
    
    6,046Earnings per common share:Before cumulative effect of accounting change
    
    $
    0.63
    
    
    $
    1.12
    
    
    $
    1.28Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (0.10
    )$
    0.63
    
    
    $
    1.12
    
    
    $
    1.18Earnings per share  assuming dilution:Before cumulative effect of accounting change
    
    $
    0.61
    
    
    $
    1.09
    
    
    $
    1.26Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (0.10
    )$
    0.61
    
    
    $
    1.09
    
    
    $
    1.16
  NOTE 4  STOCK REPURCHASE PROGRAM




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 5  CREDIT ARRANGEMENTS
         June 30, 2005Total credit facilities
    
    $
    85,816,000Less:Debt outstanding
    
    
    16,055,000Outstanding letters of credit
    
    
    7,592,000Canadian standby letter of credit
    
    
    816,000Credit available
    
    $
    61,353,000




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 6  INCOME TAXES
  2005
    
    
    2004(As restated)Deferred tax assets:Accounts receivable valuation
    
    $
    507,000
    
    
    $
    386,000Inventory valuation
    
    
    3,200,000
    
    
    
    2,340,000Other, net
    
    
    1,143,000
    
    
    
    332,000Total deferred tax assets
    
    
    4,850,000
    
    
    
    3,058,000Deferred tax liabilities:Goodwill and other intangibles
    
    
    (1,916,000
    )
    
    
    (1,142,000
    )Depreciation
    
    
    (791,000
    )
    
    
    (924,000
    )Total deferred tax liabilities
    
    
    (2,707,000
    )
    
    
    (2,066,000
    )Net deferred tax asset
    
    $
    2,143,000
    
    
    $
    992,000
  2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Current:Federal
    
    $
    3,586,000
    
    
    $
    3,341,000
    
    
    $
    4,189,000Foreign
    
    
    202,000
    
    
    
    118,000
    
    
    
    53,000State and local
    
    
    407,000
    
    
    
    594,000
    
    
    
    406,0004,195,000
    
    
    
    4,053,000
    
    
    
    4,648,000Deferred:Federal
    
    
    (1,577,000
    )
    
    
    458,000
    
    
    
    374,000State and local
    
    
    (195,000
    )
    
    
    19,000
    
    
    
    25,000(1,772,000
    )
    
    
    477,000
    
    
    
    399,000Income tax provision
    
    $
    2,423,000
    
    
    $
    4,530,000
    
    
    $
    5,047,000
  2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State and local taxes, net of federal income tax benefit
    
    
    2.3
    %
    
    
    3.5
    %
    
    
    2.3
    %Other, net
    
    
    1.5
    %
    
    
    2.0
    %
    
    
    3.6
    %37.8
    %
    
    
    39.5
    %
    
    
    39.9
    %




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 7  COMMITMENTS
   Fiscal Year
    
    Amount2006
    
    $
    2,160,0002007
    
    
    1,693,0002008
    
    
    1,570,0002009
    
    
    1,554,0002010
    
    
    589,000Thereafter
    
    
    $
    7,566,000
   Fiscal Year
    
    Amount2006
    
    $
    1,388,0002007
    
    
    972,0002008
    
    
    558,0002009
    
    
    210,0002010
    
    
    Thereafter
    
    
    $
    3,128,000
 NOTE 8  GOODWILL AND INTANGIBLES




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 8  GOODWILL AND INTANGIBLES (continued)
  2005
    
    
    2004Amortized intangible assets:Gross carrying amount
    
    $
    11,383
    
    
    $
    8,774Accumulated amortization
    
    
    (4,980
    )
    
    
    (4,240
    )Net amortized intangible assets
    
    $
    6,403
    
    
    $
    4,534
  June 30, 2005
    
    
    
    
    
    
    
    
    
    
    WeightedBalance (net of
    
    
    
    
    
    
    Weighted
    
    
    Averageaccumulated
    
    
    Annual
    
    
    Average Total
    
    
    Remainingamortization)
    
    
    Amortization
    
    
    Life
    
    
    LifeTrade names
    
    $
    4,099
    
    
    $
    346
    
    
    
    20
    
    
    
    12Customer lists
    
    
    2,143
    
    
    
    357
    
    
    
    7
    
    
    
    6Other intangibles
    
    
    161
    
    
    
    29
    
    
    
    9
    
    
    
    6Net amortized intangible assets
    
    $
    6,403
    
    
    $
    732
    
    
    
    13
    
    
    
    9
   Fiscal year ending 6/30/06
    
    $
    733,000Fiscal year ending 6/30/07
    
    $
    733,000Fiscal year ending 6/30/08
    
    $
    733,000Fiscal year ending 6/30/09
    
    $
    731,000Fiscal year ending 6/30/10
    
    $
    722,000
  Mens
    
    
    WomensAccessories
    
    
    Accessories
    
    
    TotalJune 30, 2003
    
    $
    9,857
    
    
    $
    1,784
    
    
    $
    11,641Other (1)
    
    
    14
    
    
    
    
    
    
    
    14June 30, 2004
    
    $
    9,871
    
    
    $
    1,784
    
    
    $
    11,655Purchase of ETON
    
    
    6,182
    
    
    
    
    
    
    
    6,182Impairment  womens
segment
    
    
    
    
    
    
    (847
    )
    
    
    (847
    )Other (1)
    
    
    111
    
    
    
    
    
    
    
    111June 30, 2005
    
    $
    16,164
    
    
    $
    937
    
    
    $
    17,101
 
 (1)
    
    Difference due to foreign currency translation adjustments.




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 9  STOCK OPTIONS
 Employee Stock Options
  Number
    
    Weighted-Averageof Shares
    
    Exercise PriceOutstanding at June 30, 2002
    
    
    842,014
    
    
    $
    11.62Options granted
    
    
    179,000
    
    
    $
    11.67Options exercised
    
    
    (44,587
    )
    
    $
    7.68Options canceled or expired
    
    
    (97,900
    )
    
    $
    15.02Outstanding at June 30, 2003
    
    
    878,527
    
    
    $
    11.40Options granted
    
    
    149,350
    
    
    $
    12.07Options exercised
    
    
    (140,320
    )
    
    $
    8.40Options canceled or expired
    
    
    (35,750
    )
    
    $
    19.75Outstanding at June 30, 2004
    
    
    851,807
    
    
    $
    11.66Options granted
    
    
    146,600
    
    
    $
    13.26Options exercised
    
    
    (129,786
    )
    
    $
    8.54Options canceled or expired
    
    
    (78,546
    )
    
    $
    14.39Outstanding at June 30, 2005
    
    
    790,075
    
    
    $
    12.20Exercisable on June 30, 2005
    
    
    501,427
    
    
    $
    11.98
  $5.63-$8.13
    
    $11.67-$17.56All outstanding options:Number of shares
    
    
    177,060
    
    
    
    613,015Weighted-average exercise price
    
    $
    6.81
    
    
    $
    13.76Weighted-average remaining contractual life
    
    5.9 years
    
    7.4 yearsExercisable options:Number of shares
    
    
    177,060
    
    
    
    324,367Weighted-average exercise price
    
    $
    6.81
    
    
    $
    14.80
 Omnibus Plan




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 9  STOCK OPTIONS (continued)
 Non-Employee Director Stock Options
     Number
    
    Weighted-Averageof Shares
    
    Exercise PriceOutstanding at June 30, 2002
    
    
    137,251
    
    
    $
    10.25Options granted
    
    
    14,425
    
    
    $
    9.23Options exercised
    
    
    (2,585
    )
    
    $
    8.13Options canceled or expired
    
    
    (19,618
    )
    
    $
    13.37Outstanding at June 30, 2003
    
    
    129,473
    
    
    $
    9.71Options granted
    
    
    8,657
    
    
    $
    15.60Options exercised
    
    
    (2,461
    )
    
    $
    9.88Options canceled or expired
    
    
    (6,000
    )
    
    $
    19.00Outstanding at June 30, 2004
    
    
    129,669
    
    
    $
    9.67Options granted
    
    
    17,386
    
    
    $
    14.27Options exercised
    
    
    (14,350
    )
    
    $
    9.08Options canceled or expired
    
    
    (3,318
    )
    
    $
    14.00Outstanding at June 30, 2005
    
    
    129,387
    
    
    $
    10.24Exercisable on June 30, 2005
    
    
    125,887
    
    
    $
    10.12




---



##### 



Notes
To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 9  STOCK OPTIONS (continued)
  $6.09-$ 9.23
    
    $10.00-$17.75All outstanding options:Number of shares
    
    
    75,577
    
    
    
    53,810Weighted-average exercise price
    
    $
    7.21
    
    
    $
    14.50Weighted-average remaining contractual life
    
    5.2 years
    
    6.1 yearsExercisable options:Number of shares
    
    
    75,577
    
    
    
    50,310Weighted-average exercise price
    
    $
    7.21
    
    
    $
    14.48
 Other Non-Employee Director Stock Plans
  NOTE 10  EMPLOYEE BENEFIT PLANS




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 10  EMPLOYEE BENEFIT PLANS (continued)
       30




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 10  EMPLOYEE BENEFIT PLANS (continued)
  2005
    
    
    2004Change in projected benefit obligation:Projected benefit obligation, beginning of year
    
    $
    2,285
    
    
    $
    2,134Service cost
    
    
    19
    
    
    
    15Interest cost
    
    
    171
    
    
    
    160Actuarial loss (gain)
    
    
    899
    
    
    
    (24
    )Plan amendments
    
    
    
    
    
    
    Projected benefit obligation, end of year
    
    $
    3,374
    
    
    $
    2,285Reconciliation of funded status:Funded status
    
    $
    (3,374
    )
    
    $
    (2,285
    )Unrecognized prior service cost
    
    
    1,702
    
    
    
    1,843Unrecognized net loss (gain)
    
    
    875
    
    
    
    (24
    )Accrued benefit liability
    
    $
    (797
    )
    
    $
    (466
    )Amounts recognized in the balance sheet:Accrued benefit liability
    
    $
    (2,926
    )
    
    $
    (1,721
    )Intangible asset
    
    
    1,702
    
    
    
    1,255Accumulated other comprehensive income
    
    
    427
    
    
    
    Net amount recognized
    
    $
    (797
    )
    
    $
    (466
    )Components of net periodic benefit cost:Service cost
    
    $
    19
    
    
    $
    15Interest cost
    
    
    171
    
    
    
    160Amortization of prior service cost
    
    
    140
    
    
    
    140$
    330
    
    
    $
    315Additional information for SERP:Accumulated benefit obligation
    
    $
    2,926
    
    
    $
    1,721
  NOTE 11  DIVIDENDS
  Declaration Date
    
    Record Date
    
    Payable Date
    
    Dividend per ShareAugust 12, 2004
    
    September 30, 2004
    
    October 19, 2004
    
    $
    0.0275December 2, 2004
    
    December 31, 2004
    
    January 20, 2005
    
    $
    0.0275February 8, 2005
    
    March 31, 2005
    
    April 20, 2005
    
    $
    0.0275April 21, 2005
    
    June 30, 2005
    
    July 20, 2005
    
    $
    0.0275
  31




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 12  PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS
 Preferred Stock
   Preferred Share Purchase Rights
   NOTE 13  DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
  32




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 13  DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)
  Year Ended June 30,2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Revenue from external customers:Mens accessories
    
    $
    134,584
    
    
    $
    113,558
    
    
    $
    108,816Womens accessories
    
    
    86,648
    
    
    
    101,862
    
    
    
    115,671$
    221,232
    
    
    $
    215,420
    
    
    $
    224,487Operating income (loss) (1):Mens accessories
    
    $
    11,002
    
    
    $
    12,612
    
    
    $
    8,500Womens accessories
    
    
    (3,616
    )
    
    
    1,099
    
    
    
    6,871$
    7,386
    
    
    $
    13,711
    
    
    $
    15,371Interest expense
    
    $
    (1,222
    )
    
    $
    (2,357
    )
    
    $
    (2,833
    )Other income (2)
    
    
    246
    
    
    
    128
    
    
    
    101Income before income taxes and cumulative effect of accounting change
    
    $
    6,410
    
    
    $
    11,482
    
    
    $
    12,639Depreciation and amortization expense:Mens accessories
    
    $
    3,073
    
    
    $
    2,137
    
    
    $
    2,351Womens accessories
    
    
    1,952
    
    
    
    1,918
    
    
    
    1,916$
    5,025
    
    
    $
    4,055
    
    
    $
    4,267Capital expenditures:Mens accessories
    
    $
    559
    
    
    $
    475
    
    
    $
    331Womens accessories
    
    
    354
    
    
    
    1,102
    
    
    
    335Corporate
    
    
    2,600
    
    
    
    1,541
    
    
    
    1,778$
    3,513
    
    
    $
    3,118
    
    
    $
    2,444Total assets:Mens accessories
    
    $
    88,451
    
    
    $
    70,144
    
    
    $
    71,275Womens accessories
    
    
    44,929
    
    
    
    44,584
    
    
    
    55,997Corporate
    
    
    17,382
    
    
    
    19,895
    
    
    
    19,848$
    150,762
    
    
    $
    134,623
    
    
    $
    147,120
 
 (1)
    
    Operating income (loss) consists of net sales less cost of sales and specifically identifiable
selling, general and administrative expenses.(2)
    
    Other income includes royalty income on corporate trade names and other income not specifically
identifiable to a segment. 33




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 13  DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)
  Year Ended June 30,2005
    
    
    2004
    
    
    2003(As restated)
    
    
    (As restated)Net sales:United States
    
    $
    213,368
    
    
    $
    208,570
    
    
    $
    217,849Canada (1)
    
    
    7,864
    
    
    
    6,850
    
    
    
    6,638$
    221,232
    
    
    $
    215,420
    
    
    $
    224,487Income before provision for income taxes and cumulative effect of
accounting change:United States
    
    $
    5,976
    
    
    $
    11,232
    
    
    $
    12,555Canada (1)
    
    
    434
    
    
    
    250
    
    
    
    84$
    6,410
    
    
    $
    11,482
    
    
    $
    12,639Total assets:United States
    
    $
    143,586
    
    
    $
    128,735
    
    
    $
    141,495Canada (1)
    
    
    7,176
    
    
    
    5,888
    
    
    
    5,625$
    150,762
    
    
    $
    134,623
    
    
    $
    147,120Property, plant and equipment, at cost:United States
    
    $
    37,150
    
    
    $
    34,089
    
    
    $
    31,426Canada (1)
    
    
    592
    
    
    
    492
    
    
    
    459$
    37,742
    
    
    $
    34,581
    
    
    $
    31,885
 
 (1)
    
    Sales and income reported for our Canadian subsidiary are converted to U.S. dollars at the
average exchange rate for each of the fiscal years above. Total assets and property, plant and
equipment are converted at the exchange rate as of June 30 for each year. Our Canadian subsidiary
is reported in our mens accessories reporting segment. NOTE 14  RELATED PARTY TRANSACTIONS
  34




---



##### 



Notes To Consolidated Financial Statements
 Tandy Brands Accessories, Inc. and Subsidiaries
 NOTE 15  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
  First
    
    
    Second
    
    
    Third
    
    
    FourthFiscal 2005
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet sales
    
    $
    60,474
    
    
    $
    73,990
    
    
    $
    43,905
    
    
    $
    42,863Gross margin
    
    
    22,060
    
    
    
    28,032
    
    
    
    16,066
    
    
    
    15,075Income (loss) before income taxes
    
    
    4,562
    
    
    
    6,998
    
    
    
    (1,711
    )
    
    
    (3,439
    )Net income (loss)
    
    $
    2,814
    
    
    $
    4,291
    
    
    $
    (997
    )
    
    $
    (2,121
    )Earnings (loss) per common share
    
    $
    0.44
    
    
    $
    0.68
    
    
    $
    (0.16
    )
    
    $
    (0.33
    )Earnings (loss) per common share  assuming dilution
    
    $
    0.43
    
    
    $
    0.65
    
    
    $
    (0.16
    )
    
    $
    (0.33
    )
  Fiscal 2004 (As restated)Net sales
    
    $
    64,232
    
    
    $
    64,159
    
    
    $
    42,560
    
    
    $
    44,469Gross margin
    
    
    21,630
    
    
    
    22,081
    
    
    
    15,383
    
    
    
    16,191Income before income taxes
    
    
    4,691
    
    
    
    6,358
    
    
    
    225
    
    
    
    208Net income
    
    $
    2,824
    
    
    $
    3,888
    
    
    $
    111
    
    
    $
    129Earnings per common share
    
    $
    0.46
    
    
    $
    0.63
    
    
    $
    0.02
    
    
    $
    0.02Earnings per common share  assuming dilution
    
    $
    0.45
    
    
    $
    0.61
    
    
    $
    0.02
    
    
    $
    0.02
   NOTE 16  SUBSEQUENT EVENTS
  35




---



##### 



Report of Independent Registered Public Accounting Firm
 Tandy Brands Accessories, Inc. and Subsidiaries
 To the Board of Directors of Tandy Brands Accessories, Inc.
     
 
 36




---



##### 



Report of Management
 Tandy Brands Accessories, Inc. and Subsidiaries
 TO OUR STOCKHOLDERS:
    (-s- J.S.B Jenkins)
    
    (-s- MARK J. Flherty)J.S.B. Jenkins
    
    Mark J. FlahertyPresident and Chief Executive Officer
    
    Chief Financial Officer
 37




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 General
 ® ®  ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ®
   Year Ended June 30,2005
    
    
    2004
    
    
    2003(dollars in
thousands)Net sales:Mens accessories
    
    $
    134,584
    
    
    $
    113,558
    
    
    $
    108,816Womens accessories
    
    
    86,648
    
    
    
    101,862
    
    
    
    115,671Total net sales
    
    $
    221,232
    
    
    $
    215,420
    
    
    $
    224,487Gross margin:Mens accessories
    
    $
    53,941
    
    
    $
    44,360
    
    
    $
    41,409Womens accessories
    
    
    27,292
    
    
    
    30,925
    
    
    
    36,679Total gross margin
    
    $
    81,233
    
    
    $
    75,285
    
    
    $
    78,088Gross margin as percentage of sales:Mens accessories
    
    
    40.1
    %
    
    
    39.1
    %
    
    
    38.1
    %Womens accessories
    
    
    31.5
    %
    
    
    30.4
    %
    
    
    31.7
    %Total
    
    
    36.7
    %
    
    
    34.9
    %
    
    
    34.8
    %
   38




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
  Mens
    
    
    % of
    
    
    Womens
    
    
    % of
    
    
    Total Net
    
    
    % ofSales
    
    
    Sales
    
    
    Sales
    
    
    Sales
    
    
    Sales
    
    
    Sales2005Belts
    
    $
    91,401
    
    
    
    67.9
    %
    
    $
    27,682
    
    
    
    32.0
    %
    
    $
    119,083
    
    
    
    53.8
    %Small Leather Goods
    
    
    17,408
    
    
    
    12.9
    %
    
    
    24,329
    
    
    
    28.1
    %
    
    
    41,737
    
    
    
    18.9
    %Socks
    
    
    
    
    
    
    
    
    
    
    12,077
    
    
    
    13.9
    %
    
    
    12,077
    
    
    
    5.5
    %Cold Weather Goods
    
    
    
    
    
    
    
    
    
    
    6,441
    
    
    
    7.4
    %
    
    
    6,441
    
    
    
    2.8
    %Hats & Handbags
    
    
    
    
    
    
    
    
    
    
    10,561
    
    
    
    12.2
    %
    
    
    10,561
    
    
    
    4.8
    %Gift Accessories
    
    
    13,655
    
    
    
    10.2
    %
    
    
    
    
    
    
    
    
    
    
    13,655
    
    
    
    6.2
    %Other Products
    
    
    12,120
    
    
    
    9.0
    %
    
    
    5,558
    
    
    
    6.4
    %
    
    
    17,678
    
    
    
    8.0
    %Total Net Sales
    
    $
    134,584
    
    
    
    100
    %
    
    $
    86,648
    
    
    
    100
    %
    
    $
    221,232
    
    
    
    100
    %2004Belts
    
    $
    87,226
    
    
    
    76.8
    %
    
    $
    30,390
    
    
    
    29.8
    %
    
    $
    117,616
    
    
    
    54.6
    %Small Leather Goods
    
    
    18,329
    
    
    
    16.2
    %
    
    
    27,018
    
    
    
    26.5
    %
    
    
    45,347
    
    
    
    21.1
    %Socks
    
    
    
    
    
    
    
    
    
    
    16,977
    
    
    
    16.7
    %
    
    
    16,977
    
    
    
    7.9
    %Cold Weather Goods
    
    
    
    
    
    
    
    
    
    
    6,809
    
    
    
    6.7
    %
    
    
    6,809
    
    
    
    3.2
    %Hats & Handbags
    
    
    
    
    
    
    
    
    
    
    18,303
    
    
    
    18.0
    %
    
    
    18,303
    
    
    
    8.4
    %Gift Accessories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Products
    
    
    8,003
    
    
    
    7.0
    %
    
    
    2,365
    
    
    
    2.3
    %
    
    
    10,368
    
    
    
    4.8
    %Total Net Sales
    
    $
    113,558
    
    
    
    100
    %
    
    $
    101,862
    
    
    
    100
    %
    
    $
    215,420
    
    
    
    100
    %2003Belts
    
    $
    80,898
    
    
    
    74.4
    %
    
    $
    38,392
    
    
    
    33.2
    %
    
    $
    119,290
    
    
    
    53.1
    %Small Leather Goods
    
    
    19,856
    
    
    
    18.2
    %
    
    
    24,586
    
    
    
    21.3
    %
    
    
    44,442
    
    
    
    19.8
    %Socks
    
    
    
    
    
    
    
    
    
    
    19,019
    
    
    
    16.4
    %
    
    
    19,019
    
    
    
    8.5
    %Cold Weather Goods
    
    
    
    
    
    
    
    
    
    
    6,281
    
    
    
    5.4
    %
    
    
    6,281
    
    
    
    2.8
    %Hats & Handbags
    
    
    
    
    
    
    
    
    
    
    21,823
    
    
    
    18.9
    %
    
    
    21,823
    
    
    
    9.7
    %Gift Accessories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Products
    
    
    8,062
    
    
    
    7.4
    %
    
    
    5,570
    
    
    
    4.8
    %
    
    
    13,632
    
    
    
    6.1
    %Total Net Sales
    
    $
    108,816
    
    
    
    100
    %
    
    $
    115,671
    
    
    
    100
    %
    
    $
    224,487
    
    
    
    100
    %
 Challenges and Opportunities
     39




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 FISCAL 2005 COMPARED TO FISCAL 2004
 Net Sales and Gross Margin
  Year Ended June 30,% Increase2005
    
    
    2004
    
    
    (Decrease)(dollars in thousands)Net sales:Mens accessories
    
    $
    134,584
    
    
    $
    113,558
    
    
    
    18.5
    %Womens accessories
    
    
    86,648
    
    
    
    101,862
    
    
    
    (14.9
    %)Total net sales
    
    $
    221,232
    
    
    $
    215,420
    
    
    
    2.7
    %Gross margin:Mens accessories
    
    $
    53,941
    
    
    $
    44,360
    
    
    
    21.6
    %Womens accessories
    
    
    27,292
    
    
    
    30,925
    
    
    
    (11.7
    %)Total gross margin
    
    $
    81,233
    
    
    $
    75,285
    
    
    
    7.9
    %Gross margin as a percentage of sales:Mens accessories
    
    
    40.1
    %
    
    
    39.1
    %Womens accessories
    
    
    31.5
    %
    
    
    30.4
    %Total
    
    
    36.7
    %
    
    
    34.9
    %
     40




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 Operating Expenses
  Year Ended June 30,% Increase2005
    
    
    2004
    
    
    (Decrease)(dollars in thousands)Selling, general & administrative expenses:Mens accessories
    
    $
    39,866
    
    
    $
    29,574
    
    
    
    34.8
    %Womens accessories
    
    
    28,109
    
    
    
    27,945
    
    
    
    0.6
    %Total
    
    $
    67,975
    
    
    $
    57,519
    
    
    
    18.2
    %Depreciation and amortization expense:Mens accessories
    
    $
    3,073
    
    
    $
    2,137
    
    
    
    43.8
    %Womens accessories
    
    
    1,952
    
    
    
    1,918
    
    
    
    1.8
    %Total
    
    $
    5,025
    
    
    $
    4,055
    
    
    
    23.9
    %Interest expense
    
    $
    1,222
    
    
    $
    2,357
    
    
    
    (48.2
    %)
      Net Income




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 FISCAL 2004 COMPARED TO FISCAL 2003
 Net Sales and Gross Margin
  Year Ended June 30,% Increase2004
    
    
    2003
    
    
    (Decrease)(dollars in thousands)Net sales:Mens accessories
    
    $
    113,558
    
    
    $
    108,816
    
    
    
    4.4
    %Womens accessories
    
    
    101,862
    
    
    
    115,671
    
    
    
    (11.9
    %)Total net sales
    
    $
    215,420
    
    
    $
    224,487
    
    
    
    (4.0
    %)Gross margin:Mens accessories
    
    $
    44,360
    
    
    $
    41,409
    
    
    
    7.1
    %Womens accessories
    
    
    30,925
    
    
    
    36,679
    
    
    
    (15.7
    %)Total gross margin
    
    $
    75,285
    
    
    $
    78,088
    
    
    
    (3.6
    %)Gross margin as a percentage of sales:Mens accessories
    
    
    39.1
    %
    
    
    38.1
    %Womens accessories
    
    
    30.4
    %
    
    
    31.7
    %Total
    
    
    34.9
    %
    
    
    34.8
    %
    42




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 Operating Expenses
  Year Ended June 30,% Increase2004
    
    
    2003
    
    
    (Decrease)(dollars in thousands)Selling, general & administrative expenses:Mens accessories
    
    $
    29,574
    
    
    $
    30,384
    
    
    
    (2.7
    %)Womens accessories
    
    
    27,945
    
    
    
    28,066
    
    
    
    (0.4
    %)Total
    
    $
    57,519
    
    
    $
    58,450
    
    
    
    (1.6
    %)Depreciation and amortization expense:Mens accessories
    
    $
    2,137
    
    
    $
    2,351
    
    
    
    (9.1
    %)Womens accessories
    
    
    1,918
    
    
    
    1,916
    
    
    
    0.1
    %Total
    
    $
    4,055
    
    
    $
    4,267
    
    
    
    (5.0
    %)Interest expense
    
    $
    2,357
    
    
    $
    2,833
    
    
    
    (16.8
    %)
     Net Income
  LIQUIDITY AND CAPITAL RESOURCES




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 LIQUIDITY AND CAPITAL RESOURCES (continued)
   June 30, 2005Total credit facilities
    
    $
    85,816,000Less:Debt outstanding
    
    
    16,055,000Outstanding letters of credit
    
    
    7,592,000Canadian standby letter of credit
    
    
    816,000Credit available
    
    $
    61,353,000
    Declaration Date
    
    Record Date
    
    Payable Date
    
    Dividend per ShareAugust 12, 2004
    
    September 30, 2004
    
    October 19, 2004
    
    $
    0.0275December 2, 2004
    
    December 31, 2004
    
    January 20, 2005
    
    $
    0.0275February 8, 2005
    
    March 31, 2005
    
    April 20, 2005
    
    $
    0.0275April 21, 2005
    
    June 30, 2005
    
    July 20, 2005
    
    $
    0.0275
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    44




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 CONTRACTUAL OBLIGATIONS
  Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3 5 Years
    
    
    5 YearsLong-term debt (1)
    
    $
    16,055
    
    
    $
    
    
    
    $
    16,055
    
    
    $
    
    
    
    $
    Operating leases (2)
    
    
    7,566
    
    
    
    2,161
    
    
    
    3,263
    
    
    
    2,142
    
    
    
    Payments under royalty licenses (2)
    
    
    3,128
    
    
    
    1,388
    
    
    
    1,530
    
    
    
    210
    
    
    
    Supplemental Executive Retirement Plan (3)
    
    
    850
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    765Purchase obligations (4)
    
    
    41,843
    
    
    
    41,843
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    69,442
    
    
    $
    45,477
    
    
    $
    20,848
    
    
    $
    2,352
    
    
    $
    765
 
 (1)
    
    Our current interest rate is 4.5%. Interest on the debt above is expensed and paid monthly and
is not included in the debt obligation set forth above.(2)
    
    See Note 7 to our consolidated financial statements for a discussion of our future minimum
rental and royalty commitments.(3)
    
    See Note 16 to our consolidated financial statements and the Subsequent Events disclosure
which follows for a discussion of the SERP plan, which was terminated on September 2, 2005.(4)
    
    Purchase orders in the ordinary course of business that may be cancelled without penalty.
Purchase obligations include outstanding letters of credit of $7.6 million which primarily
represent inventory purchase commitments which typically mature in two to six months. See Note 5
to our consolidated financial statements. OFF-BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES
   Revenues
   45




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 Revenues (continued)
  Sensitivity Analysis
  June 30, 2005Percentage of
    
    
    Allowance
    
    
    Fiscal 2005
    
    
    Fiscal 2005Sales Change
    
    
    Reserves
    
    
    Expense
    
    
    EPS ImpactIncrease (Decrease)Change in customer allowances & returns
    
    
    +/- 0.5
    %
    
    $
    1,106/($1,106
    )
    
    $
    1,106/($1,106
    )
    
    
    ($0.11)/$0.11Change in allowance for bad debts
    
    
    +/- 0.125
    %
    
    $
    277/($277
    )
    
    $
    277/($277
    )
    
    
    ($0.03)/$0.03
  Inventories
  Sensitivity Analysis
  Percentage of
    
    
    June 30, 2005
    
    
    Fiscal 2005
    
    
    Fiscal 2005Inventory
    
    
    Inventory
    
    
    Expense
    
    
    EPS ImpactIncrease (Decrease)Change in inventory markdown reserve
    
    - 1%
    
    
    ($679)
    
    
    $679
    
    
($0.06)
 Goodwill
  46




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##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 Goodwill (continued)
   SEASONALITY
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet salesFiscal 2005
    
    
    27.3
    %
    
    
    33.4
    %
    
    
    19.9
    %
    
    
    19.4
    %Fiscal 2004
    
    
    29.8
    %
    
    
    29.8
    %
    
    
    19.8
    %
    
    
    20.6
    %Net Income (loss)Fiscal 2005
    
    
    70.6
    %
    
    
    107.6
    %
    
    
    (25.0
    %)
    
    
    (53.2
    %)Fiscal 2004 (as restated)
    
    
    40.6
    %
    
    
    55.9
    %
    
    
    1.6
    %
    
    
    1.9
    %
 INFLATION
  47




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##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
     48




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##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Tandy Brands Accessories, Inc. and Subsidiaries
 SUBSEQUENT EVENTS
   WEBSITE ACCESS TO COMPANY REPORTS
  FORWARD-LOOKING STATEMENTS
  49




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##### 



Selected Financial Data
 Tandy Brands Accessories, Inc. and Subsidiaries  (dollars in thousands, except per share amounts)
 Year Ended June 30,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(As restated)
    
    
    (As restated)
    
    
    (As restated)
    
    
    (As restated)Income Statement Data (1):Net sales
    
    $
    221,232
    
    
    $
    215,420
    
    
    $
    224,487
    
    
    $
    205,769
    
    
    $
    195,793Gross margin
    
    
    81,233
    
    
    
    75,285
    
    
    
    78,088
    
    
    
    72,063
    
    
    
    65,761Operating income
    
    
    7,386
    
    
    
    13,711
    
    
    
    15,371
    
    
    
    13,385
    
    
    
    10,785Interest expense
    
    
    1,222
    
    
    
    2,357
    
    
    
    2,833
    
    
    
    3,152
    
    
    
    3,584Net income before cumulative
effect of accounting change
    
    $
    3,987
    
    
    $
    6,952
    
    
    $
    7,592
    
    
    $
    6,177
    
    
    $
    4,315Cumulative effect of
accounting change for
SFAS No. 142, net of income
taxes (2)
    
    
    
    
    
    
    
    
    
    
    (581
    )
    
    
    
    
    
    
    Net income
    
    $
    3,987
    
    
    $
    6,952
    
    
    $
    7,011
    
    
    $
    6,177
    
    
    $
    4,315Earnings per share:Before cumulative effect of
accounting change
    
    $
    0.63
    
    
    $
    1.12
    
    
    $
    1.28
    
    
    $
    1.07
    
    
    $
    0.77Cumulative effect of
accounting change (2)
    
    
    
    
    
    
    
    
    
    
    (0.10
    )
    
    
    
    
    
    
    $
    0.63
    
    
    $
    1.12
    
    
    $
    1.18
    
    
    $
    1.07
    
    
    $
    0.77Earnings per share  assuming
dilution:Before cumulative effect of
accounting change
    
    $
    0.61
    
    
    $
    1.09
    
    
    $
    1.26
    
    
    $
    1.06
    
    
    $
    0.77Cumulative effect of
accounting change (2)
    
    
    
    
    
    
    
    
    
    
    (0.10
    )
    
    
    
    
    
    
    $
    0.61
    
    
    $
    1.09
    
    
    $
    1.16
    
    
    $
    1.06
    
    
    $
    0.77Cash dividends per common share
    
    $
    0.11
    
    
    $
    0.10
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Year Ended June 30,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(As restated)
    
    
    
    (As restated)
    
    
    (As restated)
    
    (As restated)Balance Sheet Data (1):Working capital
    
    $
    86,625
    
    
    $
    80,684
    
    
    $
    88,416
    
    
    $
    77,476
    
    
    $
    85,758Total assets
    
    
    150,762
    
    
    
    134,623
    
    
    
    147,120
    
    
    
    132,037
    
    
    
    136,359Long-term debt
    
    
    16,055
    
    
    
    10,000
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    47,400Stockholders equity
    
    
    105,430
    
    
    
    98,948
    
    
    
    89,188
    
    
    
    79,923
    
    
    
    73,510
 
 (1)
    
    The restatement reduced 2004, 2003, 2002 and 2001 reported earnings by $85,000, $125,000,
$116,000 and $125,000, or $0.01, $0.02, $0.02 and $0.02 per diluted share, respectively. See Note 1
to our consolidated financial statements for a discussion of the restatement of prior period
financial statements.(2)
    
    If SFAS No. 142 had been adopted in 2002 and 2001, the effect on net income would have been an
increase of $622,000 and $570,000, net of tax, with additional earnings per diluted share in the
amount of $0.11 and $0.10 for 2002 and 2001, respectively. PRICE RANGE OF COMMON STOCK  Quoted by quarter for the two fiscal years ended June 30, 2005
 Fiscal 2005
    
    High
    
    
    Low
    
    
    Fiscal 2004
    
    High
    
    
    LowSeptember 30
    
    $
    14.45
    
    
    $
    12.76
    
    
    September 30
    
    $
    15.28
    
    
    $
    11.91December 31
    
    $
    14.84
    
    
    $
    13.74
    
    
    December 31
    
    $
    16.10
    
    
    $
    14.04March 31
    
    $
    15.01
    
    
    $
    13.02
    
    
    March 31
    
    $
    16.10
    
    
    $
    12.45June 30
    
    $
    14.99
    
    
    $
    10.43
    
    
    June 30
    
    $
    14.05
    
    
    $
    12.93
 50




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##### 



DIRECTORS
 Dr. James F. Gaertner 1, 2, 3
 J.S.B. Jenkins
 Roger R. Hemminghaus 1, 3
 Gene Stallings 2, 3
 Colombe M. Nicholas 2, 3
 George C. Lake 1, 3
 W. Grady Rosier 2, 3
 OFFICERS
 J.S.B. Jenkins
 David M. Lawhon
 Mark J. Flaherty
 W. Mike Baggett
 CORPORATE DATA
 Corporate Offices
 Annual Meeting
 Common Stock Transfer Agent and
Registrar
 Corporate Counsel
 
 
 
 1
    
    Audit Committee
2Compensation
Committee 3 Nomination Committee 
 Seated left to right, Colombe Nicholas, Dr. James F. Gaertner and J.S.B. Jenkins
 Standing left to right, Roger Hemminghaus, W. Grady Rosier,
Gene Stallings and George Lake




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#####