##### 



EXHIBIT 13 (COLOR GRAPHIC) COLOR YOUR WORLD
TANDY BRANDS ACCESSORIES, INC. ANNUAL REPORT 2004




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(COLOR GRAPHIC) COLOR
Inspiring Tandy Brands bold, expressive, trend-right fashions.
This year its all about color. Throughout the pages of this report,
we explore the many ways that colors communicate  each has
its own distinct personality. Our companys fashion-forward brands
also have distinct personalities. And all are responding to the trend
toward bright, bold colors. As a fashion industry leader, Tandy
Brands Accessories, Inc. is using fiery oranges, brilliant yellows
and eye-popping reds to create a bright 2005 for our shareholders.




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(FINANCIAL HIGHLIGHTS GRAPHIC) financial highlights
Tandy Brands Acessories, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)
20042003 2002
Total Revenues ........................................................ $215,420$224,487 $205,769
Gross Profit ................................................................ 75,28578,088 72,063
Operating Income ...................................................... 13,71115,371 13,385
Net Income (1) .............................................................. 7,0377,136 6,293
Diluted Earnings Per Share ........................................ 1.101.18 1.08
Working Capital .......................................................... 81,63589,282 78,217
Total Assets ................................................................. 135,574147,986 132,778
Stockholders Equity .................................................... 99,89990,054 80,664
Book Value Per Share (2) ............................................. 15.8414.96 13.67
(1) Includes cumulative effect of accounting change for SFAS No. 142 of ($581),
or ($.10) per diluted share, in 2003. See Note 8 for effect on net income for
2002 due to change to non-amortization of goodwill.
(2) Book value per share is total stockholders equity divided by the number of
shares of stock issued and outstanding at that date. Fiscal 2004 Consolidated Product Line Sales
Mens Product Line
Womens Product Line




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(LETTER TO SHAREHOLDERS GRAPHIC) letter to shareholders  Dear Shareholders: We are pleased to share with you the highlights and challenges of this past
year, as well as some exciting opportunities for the company in 2005.
Throughout the pages of this report, well also take a look at the way
different colors can affect our moods, our thinking and our interaction with
the things around us. Colors, specifically strong, bold, fashion colors, should
certainly inspire and benefit our business this coming year. (TIE GRAPHIC) Profitable and Financially Strong Tandy Brands continues to be very profitable and financially stable. Our debt
is at its lowest point since 1994  only $10 million. During the past year, we
reduced debt by $20 million as we generated $23 million in cash flow from the
operations of the company. Fashion trends and their impact on the marketplace drive the business of Tandy
Brands Accessories. As we saw in fiscal 2003, when fashion accessory trends are
strong, our sales accelerate. In fiscal 2004, the fashion trends for womens
accessories weakened, which led to a decrease in sales compared to 2003. This
decrease was offset in part by
 strong sales in our mens accessories for the
year. Based on the strong fashion color trends for accessories this season, we
anticipate that womens fashion accessories will return to normalized sales
levels during 2005. Cash Dividend Initiated The board of directors and company management continue to seek ways to increase
shareholder value. Because of the companys strong cash flow, the board
initiated payment of the companys first quarterly cash dividends. As a result,
shareholders received $0.10 per share over the past year. We are pleased to
announce that the board has increased the September quarterly dividend to
$0.0275 per share, a 10 percent increase over the same quarter last year. Competitive Advantage Through Technology During fiscal 2004, we invested over $3 million in systems and equipment to
enhance our operating and manufacturing efficiencies. Our superior service
capabilities allow us to continue to gain various competitive advantages. We
have been recognized by Wal-Mart for being among the first group of suppliers
to begin using the new Radio Frequency Identification (RFID) technology.
Additionally, our superior distribution capabilities earned Targets
Operational Vendor of the Year Award. (AWARD GRAPHIC) target award
   2




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(HEADER IMAGE)  New Products Each year we look for new opportunities to increase market share. We are very
enthusiastic about two new product categories to be introduced this next year. As mens dress fashion-accessory trends strengthened, we saw new opportunity in
the mens jewelry business. Focusing primarily on cufflinks and tie accessories
in exciting colors and styles, we recently obtained significant placement for
our new products in
a wide variety of department stores for 2005. We have also introduced mens neckwear to our product offerings. We have a
talented sales and product team to create and promote a great line of neckwear,
but a new aspect of this business will be in its delivery.
We will be producing and shipping this product directly to our customers from
offshore factories so that our pricing is very competitive as compared to
established neckwear suppliers. Gift Business Acquisition On the first day of fiscal 2005, we acquired Superior Merchandise
Company and opened up an entirely new product category  gift accessories.
Selling under the totes®, ETON® and a variety of private-label brands, we
expect to generate sales of over $12 million this year. (TOTES GIFT CATALOGUE)
 This acquisition strengthens our position in the department store channel and
provides excellent growth opportunities for the future. Looking Ahead to a Colorful 2005 We are excited about the upcoming year. The new, bright, color trends in mens
and womens fashion accessories, which you can see throughout this annual
report, are generating strong customer interest in our product lines. We are
enthusiastic about the growth opportunities for Tandy Brands Accessories in
2005, and we are confident that our recent new product introductions and gift
business acquisition will provide increased sales and increased earnings for
the company. Finally, because of our financial strength and strong cash flow,
the company is well-positioned to take advantage of future growth opportunities
to increase shareholder value. Thank you for continuing to support Tandy Brands.
We hope you enjoy this colorful look at fiscal 2004. -s- James F. Gaertner James F. Gaertner Chairman of the Board -s- J.S.B. Jenkins J.S.B. Jenkins
President and Chief Executive Officer
   3




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(ROLFS PURSE GRAPHIC) rolfs




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(ORANGE GRAPHIC) Orange
the color of friendship
In nature, orange works closely with other colors
to create f ire, autumn leaves and sunsets. Its a
team player and yet it commands its own attention.
Orange makes people smile. It is deliciously
appetizing. In fashion, orange turns accent pieces
into exclamation points.




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(LEVI'S GRAPHIC) LEVIS




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(PINK GRAPHIC) PINK
Pink is a close cousin to red. It shares the excitement,
but adds a touch of sweetness. Its a color of
many moods. In vivid tones, pink can be shocking.
It can be fresh, or it can remind us of the pastel
50s. Pink is as fashionable and versatile as the
Tandy Brands products it colors.
the color of caring & sharing




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(DOCKERS PURSE GRAPHIC) DOCKERS WOMEN




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(GREEN GRAPHIC) green
Green is the official color of nature  from the stunning
array of greens in a forest to the cool blue-green of a
peaceful lake. Foods that are good for you, like spinach
and broccoli, are green. In the wrong hands, green can
become an avocado refrigerator. In the right hands, it
can be a refreshing development in fashion.
the color of life




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(JONES BELTS GRAPHIC) JONES NEW YORK




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(BROWN GRAPHIC) brown
Its no accident that many wallets are brown. But the
richness of brown is deeper and more meaningful.
Brown is down-to -earth, lasting. Its the color of the
family dining table and your favorite old reading
chair. As a color, brown is an anchor that allows other
colors to go wild.
the color of richness




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(ACCESSORY DESIGN GROUP GRAPHIC) ACCESSORY DESIGN GROUP




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(RED GRAPHIC) red
What can we say about red that red doesnt say for itself.
Its the color of stop signs and Valentine roses. Its brash,
warm, it arouses the senses. You can almost taste red. In
fashion, red can be loud or it can be classic. It can be an
underline or it can be the message.
the color of passion




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(CONSOLIDATED STATEMENTS OF INCOME GRAPHIC) Consolidated Statements of Income
Tandy Brands Accessories, Inc. and Subsidiaries
(Dollars in thousands, except per share amounts) Year Ended June 30,2004
    
    2003
    
    2002Net sales
    
    $
    215,420
    
    
    $
    224,487
    
    
    $
    205,769Cost of goods sold
    
    
    140,135
    
    
    
    146,399
    
    
    
    133,706Gross margin
    
    
    75,285
    
    
    
    78,088
    
    
    
    72,063Selling, general and administrative expenses
    
    
    57,519
    
    
    
    58,450
    
    
    
    53,297Depreciation and amortization
    
    
    4,055
    
    
    
    4,267
    
    
    
    5,381Total operating expenses
    
    
    61,574
    
    
    
    62,717
    
    
    
    58,678Operating income
    
    
    13,711
    
    
    
    15,371
    
    
    
    13,385Interest expense
    
    
    (2,357
    )
    
    
    (2,833
    )
    
    
    (3,152
    )Royalty and other income
    
    
    128
    
    
    
    101
    
    
    
    70Income before provision for income taxes and cumulative effect of accounting change
    
    
    11,482
    
    
    
    12,639
    
    
    
    10,303Provision for income taxes
    
    
    4,445
    
    
    
    4,922
    
    
    
    4,010Net income before cumulative effect of accounting change
    
    
    7,037
    
    
    
    7,717
    
    
    
    6,293Cumulative effect of accounting change for SFAS No. 142, net of income taxes of $369,000
    
    
    
    
    
    
    (581
    )
    
    
    Net income
    
    $
    7,037
    
    
    $
    7,136
    
    
    $
    6,293Earnings per common share:Before cumulative effect of accounting change
    
    $
    1.13
    
    
    $
    1.30
    
    
    $
    1.09Cumulative effect of accounting change
    
    
    
    
    
    
    (.10
    )
    
    
    $
    1.13
    
    
    $
    1.20
    
    
    $
    1.09Earnings per common share  assuming dilution:Before cumulative effect of accounting change
    
    $
    1.10
    
    
    $
    1.28
    
    
    $
    1.08Cumulative effect of accounting change
    
    
    
    
    
    
    (.10
    )
    
    
    $
    1.10
    
    
    $
    1.18
    
    
    $
    1.08Dividends declared per share
    
    $
    0.10
    
    
    $
    
    
    
    $
    Common shares outstanding
    
    
    6,229
    
    
    
    5,952
    
    
    
    5,779Common shares outstanding  assuming dilution
    
    
    6,389
    
    
    
    6,046
    
    
    
    5,833
 14
    
    The accompanying notes are an integral part of these consolidated financial statements.




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(CONSOLIDATED BALANCE SHEETS GRAPHIC) Consolidated
Balance Sheets Graphic
Tandy Brands Accessories, Inc. and Subsidiaries
(Dollars in thousands) June 30,2004
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,086
    
    
    $
    3,814Accounts receivable, net of allowances of $1,142 and $1,745
    
    
    33,427
    
    
    
    41,672Inventories
    
    
    57,086
    
    
    
    62,156Deferred income taxes
    
    
    4,009
    
    
    
    4,757Other current assets
    
    
    1,613
    
    
    
    1,250Total current assets
    
    
    102,221
    
    
    
    113,649Property, plant and equipment, at cost:Buildings
    
    
    8,243
    
    
    
    7,925Leasehold improvements
    
    
    1,661
    
    
    
    1,560Machinery and equipment
    
    
    24,677
    
    
    
    22,40034,581
    
    
    
    31,885Accumulated depreciation
    
    
    (20,206
    )
    
    
    (17,261
    )Net property, plant and equipment
    
    
    14,375
    
    
    
    14,624Other assets:Goodwill, net of accumulated amortization of $7,143
    
    
    11,655
    
    
    
    11,641Other intangibles, net of accumulated amortization of $4,240 and $3,874
    
    
    4,534
    
    
    
    4,900Supplemental Executive Retirement Plan intangible asset
    
    
    1,255
    
    
    
    1,456Other noncurrent assets
    
    
    1,534
    
    
    
    1,716Total other noncurrent assets
    
    
    18,978
    
    
    
    19,713$
    135,574
    
    
    $
    147,986Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    14,224
    
    
    $
    14,522Accrued payroll and bonuses
    
    
    3,804
    
    
    
    4,193Accrued expenses
    
    
    2,558
    
    
    
    5,652Total current liabilities
    
    
    20,586
    
    
    
    24,367Other liabilities:Notes payable
    
    
    10,000
    
    
    
    30,000Deferred income taxes
    
    
    2,066
    
    
    
    1,776Supplemental Executive Retirement Plan liability
    
    
    1,721
    
    
    
    1,607Other noncurrent liabilities
    
    
    1,302
    
    
    
    182Total other liabilities
    
    
    15,089
    
    
    
    33,565Commitments 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;
6,305,886 shares and 6,019,286 shares issued and outstanding
as of June 30, 2004 and 2003, respectively
    
    
    6,306
    
    
    
    6,019Additional paid in capital
    
    
    26,765
    
    
    
    23,802Retained earnings
    
    
    67,843
    
    
    
    61,429Cumulative other comprehensive income
    
    
    (121
    )
    
    
    (1,196
    )Shares held by Benefit Restoration Plan Trust
    
    
    (894
    )
    
    
    Total stockholders equity
    
    
    99,899
    
    
    
    90,054$
    135,574
    
    
    $
    147,986
 The accompanying notes are an integral part of these consolidated financial statements.
    
    
    15




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(CONSOLIDATED STATEMENTS OF CASH FLOWS GRAPHIC) Consolidated Statements of Cash Flows
Tandy Brands Accessories, Inc. and Subsidiaries
(Dollars in thousands) 2004
    
    2003
    
    2002Cash flows from operating activities:Net income
    
    $
    7,037
    
    
    $
    7,136
    
    
    $
    6,293Adjustments to reconcile net income to net cash
provided by (used for) operating activities:Depreciation
    
    
    3,863
    
    
    
    3,677
    
    
    
    3,774Amortization
    
    
    366
    
    
    
    503
    
    
    
    1,523Amortization of debt origination costs
    
    
    116
    
    
    
    269
    
    
    
    219Deferred taxes
    
    
    392
    
    
    
    (95
    )
    
    
    (388
    )Income tax benefit of exercise of employee stock options
    
    
    257
    
    
    
    
    
    
    
    Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    581
    
    
    
    Other
    
    
    90
    
    
    
    100
    
    
    
    (674
    )Change in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    8,245
    
    
    
    (7,973
    )
    
    
    996Inventories
    
    
    5,070
    
    
    
    (9,338
    )
    
    
    9,761Other assets
    
    
    (655
    )
    
    
    (122
    )
    
    
    (548
    )Accounts payable
    
    
    (298
    )
    
    
    1,767
    
    
    
    3,347Accrued expenses
    
    
    (1,470
    )
    
    
    1,503
    
    
    
    1,963Net cash provided by (used for) operating activities
    
    
    23,013
    
    
    
    (1,992
    )
    
    
    26,266Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,118
    )
    
    
    (2,444
    )
    
    
    (2,716
    )Purchase of assets of AA&E Leathercraft, Inc.
    
    
    
    
    
    
    
    
    
    
    (995
    )Net cash used for investing activities
    
    
    (3,118
    )
    
    
    (2,444
    )
    
    
    (3,711
    )Cash flows from financing activities:Sale of stock to Stock Purchase Program
    
    
    1,640
    
    
    
    1,381
    
    
    
    1,131Exercise of employee stock options
    
    
    1,203
    
    
    
    363
    
    
    
    141Dividends
    
    
    (466
    )
    
    
    
    
    
    
    Proceeds from borrowings
    
    
    36,950
    
    
    
    66,145
    
    
    
    65,432Payments under borrowings
    
    
    (56,950
    )
    
    
    (66,145
    )
    
    
    (82,832
    )Net cash provided by (used for) financing activities
    
    
    (17,623
    )
    
    
    1,744
    
    
    
    (16,128
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,272
    
    
    
    (2,692
    )
    
    
    6,427Cash and cash equivalents at beginning of period
    
    
    3,814
    
    
    
    6,506
    
    
    
    79Cash and cash equivalents at end of period
    
    $
    6,086
    
    
    $
    3,814
    
    
    $
    6,506Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    2,686
    
    
    $
    2,560
    
    
    $
    2,720Income taxes
    
    
    4,717
    
    
    
    4,662
    
    
    
    3,602
 16
    
    The accompanying notes are an integral part of these consolidated financial statements.




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(CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY GRAPHIC) Consolidated Statements of Stockholders Equity
Tandy Brands Accessories, Inc. and Subsidiaries
(Dollars in thousands) Common Stock
    
    AdditionalPaid in
    
    Retained
    
    CumulativeOtherComprehensive
    
    Shares Heldby BenefitRestoration
    
    Treasury Stock
    
    TotalStockholders'Shares
    
    Amount
    
    Capital
    
    Earnings
    
    Loss
    
    Plan Trust
    
    Shares
    
    Amount
    
    EquityBalance at June 30, 2001
    
    
    5,882,926
    
    
    $
    5,883
    
    
    $
    22,572
    
    
    $
    48,000
    
    
    $
    (670
    )
    
    
    
    
    
    
    (212,011
    )
    
    $
    (1,650
    )
    
    $
    74,135Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,293Other comprehensive income, net of tax:Currency translation adjustments, net of tax of $3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Fair value of interest rate swap, net of
tax of $659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,041
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,041
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,257Sale of stock to the Tandy Brands Accessories, Inc.
Stock Purchase Program
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,751
    
    
    
    1,138
    
    
    
    1,131Sale of unissued common stock to employees
for exercise of stock options
    
    
    12,958
    
    
    
    13
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114Sale of unissued common stock to directors
for exercise of stock options
    
    
    3,289
    
    
    
    3
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Balance at June 30, 2002
    
    
    5,899,173
    
    
    
    5,899
    
    
    
    22,690
    
    
    
    54,293
    
    
    
    (1,706
    )
    
    
    
    
    
    
    (66,260
    )
    
    
    (512
    )
    
    
    80,664Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,136Other comprehensive income, net of tax:Currency translation adjustments, net of tax of $332
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    488Fair value of interest rate swap, net of tax of $13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,646Sale 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
    
    
    6,019,286
    
    
    
    6,019
    
    
    
    23,802
    
    
    
    61,429
    
    
    
    (1,196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,054Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,037Other comprehensive income, net of tax:Currency translation adjustments, net of tax of $39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Fair value of interest rate swap, net of
tax of $646
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,112Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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
    
    
    6,305,886
    
    
    $
    6,306
    
    
    $
    26,765
    
    
    $
    67,843
    
    
    $
    (121
    )
    
    $
    (894
    )
    
    
    
    
    
    $
    
    
    
    $
    99,899
 The accompanying notes are an integral part of these consolidated financial statements.
    
    
    17




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company and Basis of Presentation Tandy Brands Accessories, Inc. (the Company) designs, manufactures and
markets fine leather goods, handbags and fashion accessories for men,
women and children. We sell our products through all major retail distribution
channels throughout the United States and Canada, including mass
merchants, national chain stores, department stores, mens and womens
specialty stores, catalog retailers, grocery stores, drug stores, golf pro
shops, sporting goods stores and the retail exchange operations of the United
States military. The preparation of our consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
the use of estimates that affect the reported value of assets, liabilities,
revenues and expenses. These estimates are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for our conclusions. We
continually evaluate the information used to make these estimates as the
business and economic environment changes. Actual results may differ
from these estimates under different assumptions or conditions. The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Certain prior year amounts have been reclassified to conform to the fiscal 2004
presentation. Cash and Cash Equivalents We consider cash on hand, deposits in banks and short-term investments with
original maturities of less than three months as cash and cash
equivalents. Inventories Inventories are stated at the lower of cost (principally standard cost, which
approximates actual cost on a first-in, first-out basis) or market. Cost
includes materials, direct and indirect labor and factory overhead. Market,
with respect to raw materials, is replacement cost; and for work-in-process
and finished goods, it is net realizable value. Inventories consist of the following: June 30,2004
    
    2003Raw materials
    
    $
    3,776,000
    
    
    $
    4,789,000Work-in-process
    
    
    1,204,000
    
    
    
    1,032,000Finished goods
    
    
    52,106,000
    
    
    
    56,335,000$
    57,086,000
    
    
    $
    62,156,000
 Property and Equipment Property and equipment are carried at cost less accumulated depreciation.
Depreciation is primarily calculated at the following rates using the
straight-line method: Buildings
    
    3%Leasehold improvements
    
    The lesser of the life of the lease or assetMachinery and equipment
    
    10% to 50%
 Maintenance and repairs are charged to expense as incurred. Renewals and
betterments which materially prolong the useful lives of the assets are
capitalized. The cost and the related accumulated depreciation of property
retired or sold are removed from the accounts, and gains or losses from
retirements and sales are recognized in the consolidated statements of income. Impairment of Long-Lived Assets We review long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset is impaired. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to its estimated fair value, based on future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired,
the impairment recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. 18




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Values of Financial Instruments Our financial instruments consist primarily of cash, trade receivables, trade
payables, debt instruments and interest rate swaps. The carrying values
of cash, trade receivables and trade payables are considered to be
representative of their respective fair values. The potential impact of market
conditions on the fair value of our indebtedness is not expected to be
material. Given that such lines of credit bear interest at floating market
interest rates, the fair value of amounts borrowed approximates carrying value. See Note
5 for information regarding our interest rate swap agreement, which
expired on June 27, 2004. Goodwill and Other Intangibles Effective July 1, 2002, we adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets. This
Statement changed the accounting for goodwill and indefinite-lived intangible
assets from an amortization approach to an impairment-only approach.
During the first quarter of fiscal 2003, we recorded a transitional goodwill
impairment charge of $950,000 ($581,000, net of tax), presented as a
cumulative effect of an accounting change. The charge related to our womens
accessories segment of products. Prior to the adoption of SFAS No.
142, we amortized goodwill and other intangible assets using the straight-line
method over their estimated useful lives, which range from three to
forty years. We continue to amortize finite-lived intangibles, primarily trade
names, over their useful lives. See Note 8. Foreign Currency Translation The functional currency for our Canadian subsidiary is the Canadian dollar. The
assets and liabilities of the subsidiary are translated into U.S. dollars
at the exchange rates in effect at each balance sheet date, and resulting
translation gains or losses are accumulated in other comprehensive income
(loss) as a separate component of stockholders equity. Revenue and expenses
are translated at the monthly average exchange rates occurring
during each year. Cumulative other comprehensive loss included currency
translation adjustments of ($121,000), ($177,000) and ($665,000), net of
tax of ($82,000), ($120,000) and ($453,000) at June 30, 2004, 2003 and 2002,
respectively. Revenues We recognize revenue when merchandise is shipped and title to the goods has
passed to the customer. We record allowances, including cash
discounts, in-store customer allowances, cooperative advertising allowances and
customer returns, at the time the revenue is recognized based upon
historical experience, current trends in the retail industry and individual
customer and product experience. We perform periodic credit evaluations of our customers financial condition
and reserve against accounts deemed uncollectible based upon historical
losses and customer specific events. After all collection efforts are exhausted
and the account is deemed uncollectible, it is written off against the
reserve for doubtful accounts. Credit losses have historically been within
managements expectations and we generally do not require collateral.
During the second quarter of fiscal 2004, we recorded a bad debt recovery of
approximately $651,000 arising from a customers bankruptcy court
settlement and receipt of payment of accounts receivable previously reserved by
the Company. Major Customers Consolidated net sales to Wal-Mart accounted for approximately 37%, 36% and 39%
of our sales in fiscal 2004, 2003 and 2002, respectively. Both
mens and womens accessories sales include revenues from Wal-Mart.
Additionally, consolidated net sales to Target accounted for approximately
14%, 15% and 13% of our sales in fiscal 2004, 2003 and 2002, respectively.
Womens accessories sales include revenues from Target. No other
customers accounted for 10% or more of our total revenues. Advertising Costs We expense advertising costs as they are incurred. Advertising costs were
$1,786,000, $2,079,000 and $2,224,000 in fiscal 2004, 2003 and 2002,
respectively, consisting primarily of shows and conventions as well as display
and print advertising. 19




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Stock-Based Compensation We may, with the approval of our Board of Directors, grant stock options for a
fixed number of shares to employees with an exercise price equal to
the fair value of the shares at the date of grant. We account for stock option
grants using the intrinsic value method in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees, and, accordingly, we
recognize no compensation expense for the stock option grants. The
following table reflects the impact on net income if we had applied the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation for fiscal 2004, 2003 and
2002 (dollars in thousands, except per share amounts): 2004
    
    2003
    
    2002Net income:As reported
    
    $
    7,037
    
    
    $
    7,136
    
    
    $
    6,293Stock-based compensation expense
    
    
    150
    
    
    
    
    
    
    
    Net income
    
    $
    7,187
    
    
    $
    7,136
    
    
    $
    6,293Compensation expense per SFAS No. 123
    
    
    (625
    )
    
    
    (496
    )
    
    
    (562
    )Pro forma
    
    $
    6,562
    
    
    $
    6,640
    
    
    $
    5,731Earnings per share:As reported
    
    $
    1.13
    
    
    $
    1.20
    
    
    $
    1.09Pro forma
    
    $
    1.05
    
    
    $
    1.12
    
    
    $
    0.99Earnings per share  assuming dilution:As reported
    
    $
    1.10
    
    
    $
    1.18
    
    
    $
    1.08Pro forma
    
    $
    1.03
    
    
    $
    1.10
    
    
    $
    0.98
 Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, Accounting for Stock-Based Compensation, and
has been determined as if we had accounted for our stock options under the fair
value method of SFAS No. 123. The fair value for these options was
estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for fiscal 2004, 2003
and 2002: dividend yield of 1.0% for 2004 and 0.0% for 2003 and 2002; expected
volatility of 0.238%, 0.270% and 0.334% for fiscal 2004, 2003
and 2002, respectively; a risk-free interest rate of 5.25%, 5.25% and 6.50% for
fiscal 2004, 2003 and 2002, respectively; and an expected holding
period of seven years. Using these assumptions for the options granted during
fiscal 2004, 2003 and 2002, the weighted-average fair value of such
options on the date of grant was $4.76, $4.76 and $2.76, respectively. The Black-Scholes valuation models are used in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility and the average
life of options. Because our stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
managements opinion the existing models do not necessarily provide
a reliable single measure of the fair value of our stock options. Derivative Instruments and Hedging Activities Our risk management policy as it relates to derivative investments is to
mitigate, subject to market conditions, against interest rate risk. We do not
enter into any derivative investments for the purpose of speculative
investment. Our overall risk management philosophy is re-evaluated as business
conditions change. For information regarding our interest rate swap, which
expired during fiscal 2004, see Note 5. Impact of Recently Issued Accounting Standards In December 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132R, Employers Disclosures about Pensions and Other
Postretirement Benefits. This Statement amends the disclosure requirements of
SFAS No. 132 to require additional disclosures about plan assets and
obligations, cash flows, investment policy and measurement dates. The required
disclosures have been included in Notes 9 and 10. NOTE 2  ACQUISITIONS On April 12, 2002, we acquired certain assets of AA&E Leathercraft, Inc.
(AA&E) for approximately $995,000 in cash. The cash purchase price
was provided by drawing on our existing credit facility. The assets included,
but were not limited to, wholesale accounts receivable, wholesale
inventory, certain machinery and equipment, and a 10,000-square-foot building
located in Yoakum, Texas. AA&E is a manufacturer and distributor
of leather sporting goods accessories. We combined AA&E with existing product
offerings in our mens accessories segment. See Note 13. We
used the purchase method of accounting for this acquisition which resulted in
goodwill of approximately $164,000. Other intangibles related to
the consideration given for non-compete agreements of approximately $75,000 are
being amortized over 7 years. The pro forma effects of this
acquisition are not material. 20




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 2  ACQUISITIONS (continued) On June 3, 2004, we announced an agreement to purchase all of the equity
interest in Superior Merchandise Company (Superior) for approximately
$10,000,000 in cash and the retirement of all of Superiors debt. Based in New
Orleans, Superior, which also operates under the name
ETON®, is a
gift accessory company that sells under both the
ETON® and the licensed totes®
brands. The pro forma effects of this acquisition are not expected to
be material. We completed this transaction on July 1, 2004. See Note 16. NOTE 3  EARNINGS PER SHARE The following sets forth the computation of basic and diluted earnings per
share (dollars in thousands, except per share amounts): Year Ended June 30,2004
    
    2003
    
    2002Numerator for basic and diluted earnings per share:Net income before cumulative effect of accounting change
    
    $
    7,037
    
    
    $
    7,717
    
    
    $
    6,293Cumulative effect of accounting change for SFAS No. 142, net of
income taxes
    
    
    
    
    
    
    (581
    )
    
    
    Net income
    
    $
    7,037
    
    
    $
    7,136
    
    
    $
    6,293Denominator:Weighted-average shares outstanding
    
    
    6,208
    
    
    
    5,934
    
    
    
    5,765Contingently issuable shares
    
    
    21
    
    
    
    18
    
    
    
    14Denominator for basic earnings per share  weighted-average shares
    
    
    6,229
    
    
    
    5,952
    
    
    
    5,779Effect of dilutive securities:Employee stock options
    
    
    132
    
    
    
    78
    
    
    
    46Director stock options
    
    
    28
    
    
    
    16
    
    
    
    8Dilutive potential common shares
    
    
    160
    
    
    
    94
    
    
    
    54Denominator for earnings per share  assuming dilution  adjusted
weighted-average shares
    
    
    6,389
    
    
    
    6,046
    
    
    
    5,833Earnings per common share:Before cumulative effect of accounting change
    
    $
    1.13
    
    
    $
    1.30
    
    
    $
    1.09Cumulative effect of accounting change
    
    
    
    
    
    
    (.10
    )
    
    
    $
    1.13
    
    
    $
    1.20
    
    
    $
    1.09Earnings per share  assuming dilution:Before cumulative effect of accounting change
    
    $
    1.10
    
    
    $
    1.28
    
    
    $
    1.08Cumulative effect of accounting change
    
    
    
    
    
    
    (.10
    )
    
    
    $
    1.10
    
    
    $
    1.18
    
    
    $
    1.08
 Options to purchase approximately 265,000 shares of common stock at prices
ranging from $13.38-$17.75 per share were outstanding during fiscal
year 2004 but were not included in the computation of earnings per share -
assuming dilution because the options exercise prices were greater than
the average market price of the common shares and therefore, the effect would
be antidilutive. NOTE 4  STOCK REPURCHASE PROGRAM On September 10, 1999, our Board of Directors approved a plan to repurchase,
from time to time in the open market or through privately negotiated
transactions, shares of our common stock at an aggregate purchase price of up
to $2,000,000, and on October 17, 2000, our Board increased
the plan by up to an additional $2,000,000. On April 21, 2001, our Board
determined to temporarily discontinue any purchases under the stock
repurchase plan. Since such time, the Board has not authorized management to
resume repurchases under the plan. As a result, no shares were
repurchased during fiscal 2004, 2003 or 2002. During fiscal 2004, no treasury
shares were reissued to our employee Stock Purchase Program.
During 2003 and 2002, 66,260 and 145,751 shares of treasury stock,
respectively, were reissued to our employee Stock Purchase Program. 21




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 5  CREDIT ARRANGEMENTS On June 26, 2003, we amended our committed secured revolving credit facility
(credit facility) with certain financial institutions. The amendment
to the credit facility extended the expiration of the agreement from June 27,
2004, to November 30, 2006, and reduced the facility from $80,000,000
to $60,000,000. Of this amount, $10,000,000 was a sub-limit of the credit
facility (swing line) which could be used for same-day advances to
be provided solely by the administrative agent (a financial institution) of the
credit facility. Both the credit facility and swing line bore interest at
variable rates with short-term durations. The credit facility could be used for
borrowings and letters of credit. The credit facility was guaranteed by
substantially all of our subsidiaries, was secured by substantially all of our
assets and the assets of our subsidiaries, and required the maintenance
of certain financial covenants which, if not met, could adversely impact our
liquidity. Our credit facility permitted the payment of dividends and did
not require us to enter into a new interest rate swap agreement (see below)
against the borrowings under the credit facility. The credit facility also
included a commitment fee based on certain financial performance objectives
ranging from 25 to 37.5 basis points on the unused balance. Principal
payments on the credit facility are due on the expiration date. At June 30,
2004, we had borrowings under the credit facility of $10,000,000 bearing
interest at 2.82%. Our interest rate swap agreement (see description below)
expired on June 27, 2004, and is not included in our effective interest
rate on that date. As of June 30, 2003, we had borrowings under the credit
facility of $30,000,000 bearing interest at 5.60%, including the interest
rate swap agreement that was in effect at that time. At June 30, 2004 and 2003,
we had no borrowings under the swing line. Given that our credit
facility bears interest at floating market interest rates, the fair value of
amounts borrowed approximate carrying value. On August 26, 2004, we
amended our credit facility. See Note 16 for additional information regarding
this subsequent event. At June 30, 2004 and 2003, we had outstanding letters of credit under the
credit facility of $4,447,000 and $7,352,000, respectively, which were
used in conjunction with merchandise procurement. We also have a Canadian line of credit for approximately $746,000 secured by a
letter of credit from a U.S. bank. At June 30, 2004 and 2003, there
were no borrowings under this line of credit. We are subject to interest rate risk on our long-term debt. We manage our
exposure to changes in interest rates. We hedged our exposure to changes
in interest rates on a portion of our variable debt by entering into an
interest rate swap agreement to lock in a fixed interest rate for a portion of
these
borrowings. On July 1, 2001, we entered into a three-year interest rate swap
agreement with the administrative agent of our credit facility converting
$30,000,000 of outstanding indebtedness from a variable to a fixed interest
rate. The average receive rate was based on a 90-day LIBOR rate. At
June 30, 2003, the receive and pay rates related to the interest rate swap were
1.29% and 5.60%, respectively. Interest differentials paid or received
under the swap agreement are reflected as an adjustment to interest expense
when paid. Prior to June 26, 2003, the interest rate swap agreement
represented a valid cash flow hedge investment under SFAS No. 133. As such,
during fiscal 2003, changes in the fair value of the interest rate swap
were recognized in other comprehensive income. As of June 27, 2004, the
interest rate swap agreement expired and is therefore not reflected on
our balance sheet at June 30, 2004. The fair value of the swap agreement at
June 30, 2003, was approximately ($1,665,000), and was included in
accrued liabilities at June 30, 2003. At June 30, 2003 and 2002, the balance in
other comprehensive income, related to the swap agreement, was
approximately ($1,019,000), net of tax of $646,000, and ($1,041,000), net of
tax of $659,000, respectively. We do not expect the potential impact of
market conditions on the fair value of our indebtedness to be material. In conjunction with the amendment to our credit facility during fiscal 2003, we
discontinued hedge accounting on this swap. The change in the fair
value of the swap agreement and balance in other comprehensive income was
charged to interest expense during 2004, for the remaining term of
the swap. We held the swap until two days before maturity on June 27, 2004. At
that time, we canceled the swap with no penalty, and on June 28,
2004, we paid $20,000,000 on the outstanding debt. At June 30, 2004, we had credit availability under our credit facility and our
Canadian line of credit as follows: June 30, 2004Total credit facility
    
    $
    60,746,000Less:Debt outstanding
    
    
    10,000,000Outstanding letters of credit
    
    
    4,447,000Canadian standby letter of credit
    
    
    746,000Credit available
    
    $
    45,553,000
 Under the credit facilities described above, future payments required for debt
maturities will be $10,000,000 in fiscal year 2007. 22




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 6  INCOME TAXES Significant components of our deferred tax assets and liabilities as of June
30, 2004 and 2003, are as follows: 2004
    
    2003Deferred tax assets:Accounts receivable valuation
    
    $
    386,000
    
    
    $
    601,000Inventory valuation
    
    
    2,340,000
    
    
    
    2,399,000Interest rate swap
    
    
    
    
    
    
    646,000Foreign interest income
    
    
    951,000
    
    
    
    866,000Other, net
    
    
    332,000
    
    
    
    245,000Total deferred tax assets
    
    
    4,009,000
    
    
    
    4,757,000Deferred tax liabilities:Goodwill and other intangibles
    
    
    (1,142,000
    )
    
    
    (950,000
    )Depreciation
    
    
    (924,000
    )
    
    
    (826,000
    )Total deferred tax liabilities
    
    
    (2,066,000
    )
    
    
    (1,776,000
    )Net deferred tax asset
    
    $
    1,943,000
    
    
    $
    2,981,000
 Significant components of the provision (benefit) for income taxes are as follows: 2004
    
    2003
    
    2002Current:Federal
    
    $
    3,341,000
    
    
    $
    4,189,000
    
    
    $
    4,215,000Foreign
    
    
    118,000
    
    
    
    53,000
    
    
    
    (88,000
    )State and local
    
    
    594,000
    
    
    
    406,000
    
    
    
    271,0004,053,000
    
    
    
    4,648,000
    
    
    
    4,398,000Deferred:Federal
    
    
    373,000
    
    
    
    249,000
    
    
    
    (369,000
    )State and local
    
    
    19,000
    
    
    
    25,000
    
    
    
    (19,000
    )392,000
    
    
    
    274,000
    
    
    
    (388,000
    )Income tax provision
    
    $
    4,445,000
    
    
    $
    4,922,000
    
    
    $
    4,010,000
 The following table reconciles the statutory federal income tax rate to the effective income tax rate: 2004
    
    2003
    
    2002Statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State and local taxes, net of federal income tax benefit
    
    
    3.4
    %
    
    
    3.5
    %
    
    
    2.5
    %Other, net
    
    
    1.3
    %
    
    
    1.4
    %
    
    
    2.4
    %38.7
    %
    
    
    38.9
    %
    
    
    38.9
    %
 23




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 7  COMMITMENTS We lease property, which includes office, manufacturing and warehouse
facilities, under operating leases expiring through the year 2010 with varying
renewal and escalation clauses. Total rental expense for all of our leased
properties for fiscal 2004, 2003 and 2002 totaled $2,237,000, $2,165,000
and $2,251,000, respectively. We have entered into licensing agreements with other companies for the purpose
of using their trademarks on our products. Royalty expense related
thereto for fiscal 2004, 2003 and 2002 totaled $1,429,000, $1,821,000 and
$1,960,000, respectively. Future minimum rental and royalty commitments as of June 30, 2004, are as
follows: Fiscal Year
    
    Amount2005
    
    $
    3,609,0002006
    
    
    3,342,0002007
    
    
    2,342,0002008
    
    
    1,542,0002009
    
    
    1,554,000Thereafter
    
    
    560,000$
    12,949,000
 NOTE 8  GOODWILL Effective July 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible
Assets. This Statement changed the accounting for goodwill
from an amortization approach to an impairment-only approach. The SFAS No. 142
goodwill impairment model is a two-step process. The first step
compares the fair value of a reporting unit that has goodwill assigned to its
carrying value. We estimated the fair value of a reporting unit using a
discounted cash flow analysis. If the fair value of the reporting unit is
determined to be less than its carrying value, a second step is performed to
compute the amount of goodwill impairment, if any. Step two allocates the fair
value of the reporting unit to the reporting units net assets other than
goodwill. The excess of the fair value of the reporting unit over the amounts
assigned to its net assets other than goodwill is considered the implied
fair value of the reporting units goodwill. The implied fair value of the
reporting units goodwill is then compared to the carrying value of its
goodwill.
Any shortfall represents the amount of goodwill impairment. Using the SFAS No. 142 approach described above, we recorded a transitional
goodwill impairment charge during the first quarter of fiscal 2003
of $950,000 ($581,000, net of tax), presented as a cumulative effect of
accounting change. This charge related to our womens accessories
segment of products. The following table illustrates the gross carrying amount and accumulated
amortization of our acquired intangible assets as of June 30, 2004,
compared to the previous year (in thousands): 2004
    
    2003Amortized intangible assets (various, principally trade names):Gross carrying amount
    
    $
    8,774
    
    
    $
    8,774Accumulated amortization
    
    
    (4,240
    )
    
    
    (3,874
    )Net amortized intangible assets
    
    $
    4,534
    
    
    $
    4,900
 Amortization expense for acquired finite-lived intangible assets during the
year ended June 30, 2004, was $366,000. The following table illustrates
our estimated amortization expense through June 30, 2009: Estimated amortization expense:Fiscal year ending 6/30/05
    
    $
    361,000Fiscal year ending 6/30/06
    
    
    361,000Fiscal year ending 6/30/07
    
    
    361,000Fiscal year ending 6/30/08
    
    
    361,000Fiscal year ending 6/30/09
    
    
    359,000
 24




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 8  GOODWILL (continued) The following table reconciles net income, earnings per common share and
earnings per share  assuming dilution, adjusted to exclude amortization
expense recognized in such periods related to goodwill (dollars in thousands,
except per share amounts): Year Ended June 30,2004
    
    2003
    
    2002Reported net income before cumulative effect of accounting change
    
    $
    7,037
    
    
    $
    7,717
    
    
    $
    6,293Add back after-tax amounts:Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    622Adjusted net income before cumulative effect of accounting change
    
    $
    7,037
    
    
    $
    7,717
    
    
    $
    6,915Earnings per common share before cumulative effect of accounting change:Reported net income
    
    $
    1.13
    
    
    $
    1.30
    
    
    $
    1.09Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    .11Adjusted basic earnings per common share before cumulative effect of
accounting change
    
    $
    1.13
    
    
    $
    1.30
    
    
    $
    1.20Earnings per share  assuming dilution before cumulative effect of
accounting change:Reported net income
    
    $
    1.10
    
    
    $
    1.28
    
    
    $
    1.08Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    .11Adjusted earnings per share  assuming dilution before cumulative
effect of accounting change
    
    $
    1.10
    
    
    $
    1.28
    
    
    $
    1.19
 The following table illustrates the changes in the carrying amount of goodwill
by reportable segment for the year ended June 30, 2004: Men's
    
    Women'sAccessories
    
    Accessories
    
    TotalJune 30, 2002
    
    $
    9,733
    
    
    $
    2,734
    
    
    $
    12,467Impairment losses
    
    
    
    
    
    
    (950
    )
    
    
    (950
    )Other (1)
    
    
    124
    
    
    
    
    
    
    
    124June 30, 2003
    
    $
    9,857
    
    
    $
    1,784
    
    
    $
    11,641Other (1)
    
    
    14
    
    
    
    
    
    
    
    14June 30, 2004
    
    $
    9,871
    
    
    $
    1,784
    
    
    $
    11,655
  (1)
    
    Difference due to foreign currency translation adjustments. 25




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##### 



(CONSOLIDATED WITH PURSES GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 9  STOCK OPTIONS Employee Stock Options Our officers and key management employees are eligible to receive options to
purchase shares of our common stock under the Tandy Brands
Accessories, Inc. 2002 Omnibus Plan (see description below). In addition, many
of our officers and key management employees have received
options under our prior stock option plans. All options are granted at the
market price as of the date of grant and have a contractual life of ten
years. Options are generally exercisable annually at a rate of one-third per
year beginning one year after the grant date. The following table reflects
employee stock option activity from June 30, 2001, to June 30, 2004: Number
    
    Weighted-Averageof Shares
    
    Exercise PriceOutstanding at June 30, 2001
    
    
    755,928
    
    
    $
    12.94Options granted
    
    
    180,000
    
    
    $
    5.63Options exercised
    
    
    (12,958
    )
    
    $
    8.70Options canceled or expired
    
    
    (80,956
    )
    
    $
    11.13Outstanding 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
    
    
    $
    11.66Exercisable on June 30, 2004
    
    
    534,352
    
    
    $
    12.19
 The following table segregates outstanding options granted to employees into
groups based on price ranges of less than and greater than
$10 per share as of June 30, 2004: $5.63-$9.25
    
    $11.67-$17.56All outstanding options:Number of shares
    
    
    272,918
    
    
    
    578,889Weighted-average exercise price
    
    $
    6.90
    
    
    $
    13.91Weighted-average remaining contractual life
    
    6.6 years
    
    7.4 yearsExercisable options:Number of shares
    
    
    216,365
    
    
    
    317,987Weighted-average exercise price
    
    $
    7.23
    
    
    $
    15.56
 Omnibus Plan The Tandy Brands Accessories, Inc. 2002 Omnibus Plan (the Omnibus Plan) was
approved by our stockholders on October 16, 2002. The purpose
of the Omnibus Plan is to attract and retain the services of key management
employees and Board members through the granting of incentive stock
options, non-qualified stock options, performance units, stock appreciation
rights or restricted stock. All grants under the Omnibus Plan have a
maximum contractual life of ten years. Any grants under the Omnibus Plan will
be made at the fair market value of our common stock and specific
vesting terms will be addressed in each award. All shares available for grant
under our prior option plans on October 16, 2002, were transferred
to the Omnibus Plan and are authorized and reserved for issuance under the
Omnibus Plan. All shares of common stock presently authorized and
reserved for issuance on the exercise of outstanding stock options under our
prior stock option plans will, on the cancellation or expiration of any
such stock options, automatically be authorized and reserved for issuance in
connection with the Omnibus Plan. At June 30, 2004 and 2003, the number of shares available for grant under the
Omnibus Plan was 395,031 and 514,840, respectively. 26




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 9  STOCK OPTIONS (continued) Non-Employee Director Stock Options Our non-employee directors are also eligible for awards under the Omnibus Plan.
The Omnibus Plan provides that, when a non-employee director is
first elected or appointed to the Board, he or she will be granted a
non-qualified stock option to purchase 5,000 shares of our common stock or, if
the Board so elects, an alternative form of award (other than an incentive
stock option) with a value substantially equivalent to the value of such
non-qualified
stock option. The Omnibus Plan also provides that concurrently with each
regular annual election of the Board of Directors, each continuing
non-employee director (other than our Chairman) will receive a non-qualified
stock option to purchase 2,500 shares of our common stock and our
Chairman will receive a non-qualified stock option to purchase 4,425 shares of
our common stock. If the Board so elects, non-employee directors
and our Chairman may receive an alternative form of award (other than an
incentive stock option) with a value substantially equivalent to the value of
a non-qualified stock option to purchase 2,500 and 4,425 shares of our common
stock, respectively. On October 15, 2003, each of our non-employee directors, other than the
Chairman of the Board, was granted a stock option to purchase 1,500
shares of common stock at an exercise price of $15.60 and 645 shares of
restricted stock. Our Chairman was granted a stock option to purchase
2,657 shares of common stock at an exercise price of $15.60 per share and 1,140
shares of restricted stock. The options became fully vested six
months after the date of grant. The restricted stock awards will become fully
vested on October 15, 2006, with one-third of the shares vesting on
each anniversary of the date of the grant. Generally, upon the death,
disability, resignation or termination of a non-employee director, that
directors
shares become fully vested. These shares of stock, while not transferable, bear
rights of ownership, including voting and dividend rights, during the
vesting period. Compensation expense of $58,000 related to the restricted stock awards granted
to our non-employee directors was recorded during fiscal 2004. Many of our non-employee directors have also received options to purchase
shares of our common stock under our prior stock option plans. The
options are generally exercisable beginning six months after the date of grant.
During fiscal 2004, 2003 and 2002, our non-employee directors
exercised options to purchase 2,461, 2,585 and 3,289 shares of our common
stock, respectively. The following table reflects non-employee director stock option transactions
from June 30, 2001, to June 30, 2004: Number
    
    Weighted-Averageof Shares
    
    Exercise PriceOutstanding at June 30, 2001
    
    
    95,258
    
    
    $
    11.57Options granted
    
    
    45,282
    
    
    $
    6.09Options exercised
    
    
    (3,289
    )
    
    $
    8.13Options canceled or expired
    
    
    
    
    
    
    Outstanding 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
    
    
    $
    9.67Exercisable on June 30, 2004
    
    
    129,669
    
    
    $
    9.67
 27




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 9  STOCK OPTIONS (continued) The following table segregates outstanding options granted to non-employee
directors into groups based on price ranges of less than $10 or greater
than or equal to $10 per share as of June 30, 2004: $6.09-$9.23
    
    $10.00-$17.75All outstanding options:Number of shares
    
    
    84,827
    
    
    
    44,842Weighted-average exercise price
    
    $
    7.13
    
    
    $
    14.47Weighted-average remaining contractual life
    
    6.4 years
    
    5.1 yearsExercisable options:Number of shares
    
    
    84,827
    
    
    
    44,842Weighted-average exercise price
    
    $
    7.13
    
    
    $
    14.47
 Other Non-Employee Director Stock Plans In fiscal 1995, our stockholders adopted the Tandy Brands Accessories, Inc.
1995 Stock Deferral Plan for Non-Employee Directors (the Deferral
Plan). The Deferral Plan was established to provide non-employee directors an
equity interest in the Company in order to attract and retain
well-qualified individuals to serve as non-employee directors and to enhance
the identity of interests between the non-employee directors and our
stockholders. The Deferral Plan provides the directors with an election to
defer the receipt of their annual and committee chair retainer fees until
a future date determined by each director. The payment of such fees will be in
the form of phantom stock units which will ultimately be settled in
shares of our common stock. All amounts deferred are credited to a bookkeeping
reserve account we maintain in phantom stock units which are
equivalent in value to our common stock. The phantom stock units representing
shares are calculated by dividing the deferred cash amount by the
average closing price of the stock for each day of the period during which such
cash amount would have been paid but for the deferral election.
We record compensation expense for the amount of the directors retainer fees.
We benefit from cash retained when directors elect to defer their
retainer fees and receive phantom stock units. The Deferral Plan, which became
active in 1996, provides for the issuance of up to 50,000 shares
of our common stock to non-employee directors. During fiscal 2004, 2003 and
2002, 2,885, 3,411 and 4,030 phantom stock units, respectively,
were issued under the Deferral Plan. Amounts recorded as compensation expense
related to the Deferral Plan for fiscal 2004, 2003 and 2002 were
$40,096, $34,150 and $31,470, respectively. NOTE 10  EMPLOYEE BENEFIT PLANS The Tandy Brands Accessories, Inc. Employees Investment Plan Trust (the 401(k)
Plan) is open to substantially all full-time employees who have
completed one year of service. Under the 401(k) Plan, an eligible employee may
contribute up to 10% of his or her annual compensation to the
401(k) Plan on a pre-tax basis. We, at our discretion, match 100% of employee
contributions up to 5% of compensation. The 401(k) Plan allows
participants to direct the investment of both employee and matching employer
contributions from a variety of investment alternatives, one of which
is our common stock. All contributions made to the 401(k) Plan prior to July 1,
2002, are fully vested and are held in a fund invested primarily in our
common stock. The Tandy Brands Accessories, Inc. Stock Purchase Program (the Program) is
open to all full-time employees who are enrolled in the 401(k)
Plan. Under the Program, participants may contribute 5% or 10% of their
earnings and we match 25% or 50% of each participants contribution
depending on their length of employment. The Program purchases treasury stock,
if available (see Note 4), or unissued common stock directly from
the Company at monthly average market prices. The participants shares are
fully vested upon purchase and the participant may withdraw from the
Program at any time. The shares purchased under the Program are distributed to
participants annually. The Tandy Brands Accessories, Inc. Benefit Restoration Plan Trust (the BRP)
is a non-qualified plan of deferred compensation, the purpose of
which is to restore retirement benefits on behalf of a select group of our
management and highly compensated employees who are eligible to make
contributions to the 401(k) Plan, the amount of which is reduced due to
limitations imposed by Sections 401(a)(17) and 402(g) of the Internal Revenue
Code of 1986, as amended. For any plan year, a participant may elect to defer,
on a pre-tax basis, 5% of his gross salary and wages otherwise
payable to him by us during such plan year, reduced by the total contributions
he made during such plan year to the 401(k) Plan. Participants
may direct the investment of their contributions in various investment
alternatives, including our common stock. We make quarterly matching
contributions in cash to the BRP on the participants behalf equal to 150% of
the amount the participant deferred during such calendar quarter. Our
matching contributions are required to be invested only in our common stock.
All payments of benefits from the BRP will be made solely in cash in
either a single, lump-sum distribution or in monthly installments over a
certain period, not to exceed 10 years. The liability associated with the BRP
of $1,087,000 is included in other noncurrent liabilities. 28




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 10  EMPLOYEE BENEFIT PLANS (continued) Our total contributions to these plans were approximately $1,162,000,
$1,211,000 and $917,000 in fiscal 2004, 2003 and 2002, respectively. On July 1, 2003, our executive officers were awarded a total of 22,800 shares
of restricted stock, which will become fully vested on July 1, 2006.
These shares of stock, while not transferable, bear rights of ownership,
including voting and dividend rights, during the three-year vesting period.
There are no performance requirements related to vesting, only continued
employment through the vesting date. Compensation expense in the
amount of approximately $92,000 related to the restricted stock awards granted
to our executive officers was recorded during fiscal 2004. At
June 30, 2004, the Company had unearned compensation recorded in the amount of
$183,000 relating to these shares, which will be recorded as
compensation expense in the amount of approximately $23,000 per quarter through
June 30, 2006. On January 1, 2003, we adopted the Tandy Brands Accessories, Inc. Supplemental
Executive Retirement Plan (the SERP) for a select group of our
executive officers. The SERP provides that at normal retirement (age 65) a
participant will receive, in the form of a 100% joint and survivor annuity,
an annual benefit (or actuarially equivalent lump-sum at the time of retirement
in lieu of such joint and survivor annuity) which will generally be
equal to 2% of the average of the participants highest annual gross salary and
bonus (without reduction for any deductions) for three complete fiscal
years over the last 10 fiscal years of the participants employment, multiplied
by the participants years of service up to a maximum of 30 years, and
reduced by the participants Social Security retirement benefits and the
participants benefits under the Tandy Brands Accessories, Inc. Employees
Investment Plan when expressed in the form of a single-life annuity commencing
with the participants normal retirement age. If the participant
has at least 15 years of service with the Company and retires at or after age
55 but before age 65, the benefit would be reduced by 5% for each
year the participants retirement precedes age 65. A participant is also
eligible for a benefit if the participant becomes disabled or if the
participant
terminates service with us after completing 15 years of service and the
participants termination of service is not as a result of normal retirement,
early retirement or disability. If the participant begins receiving a
disability benefit or a termination benefit at or after age 55 but before age
65, the
benefit would be reduced by 5% for each year the benefit distribution precedes
age 65. The SERP also provides for a pre-retirement death benefit if
the participant dies after reaching normal retirement or early retirement age
but before receiving distributions under the SERP. 29




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 10  EMPLOYEE BENEFIT PLANS (continued) For the year ended June 30, 2004 and 2003, we recorded expenses related to the
SERP of approximately $266,000 and $151,000, respectively.
This plan is not currently funded and therefore has no plan assets. Measurement
of obligations under the SERP is calculated as of each fiscal
year-end. The discount rate used to determine the actuarial present value of
the projected benefit obligation under the SERP was 7.5% as of
June 30, 2004 and 2003, and the assumed weighted-average rate increase in
future compensation levels was 4.0% as of June 30, 2004 and
2003. We anticipate that there will be no SERP benefits paid during the next
five years. Contributions to the SERP during fiscal 2005 are expected
to be approximately $400,000. The following table provides a reconciliation of benefit obligations and funded
status of the SERP as of June 30, 2004 and 2003 (dollars in thousands): 2004
    
    2003Change in projected benefit obligation:Projected benefit obligation, beginning of year
    
    $
    2,134
    
    
    $
    Service cost
    
    
    15
    
    
    
    7Interest cost
    
    
    160
    
    
    
    74Actuarial loss/(gain)
    
    
    (24
    )
    
    
    Plan amendments
    
    
    
    
    
    
    2,053Projected benefit obligation, end of year
    
    $
    2,285
    
    
    $
    2,134Reconciliation of funded status:Funded status
    
    $
    (2,285
    )
    
    $
    (2,134
    )Unrecognized prior service cost
    
    
    1,843
    
    
    
    1,983Unrecognized prior net loss/(gain)
    
    
    (24
    )
    
    
    Accrued benefit liability
    
    $
    (466
    )
    
    $
    (151
    )Amounts recognized in the balance sheet:Accrued benefit liability
    
    $
    (1,721
    )
    
    $
    (1,607
    )Intangible asset
    
    
    1,255
    
    
    
    1,456Net amount recognized
    
    $
    (466
    )
    
    $
    (151
    )Components of net periodic benefit cost:Service cost
    
    $
    15
    
    
    $
    7Interest cost
    
    
    160
    
    
    
    74Amortization of prior service cost
    
    
    140
    
    
    
    70$
    315
    
    
    $
    151Additional information for SERP:Accumulated benefit obligation
    
    $
    1,721
    
    
    $
    1,607
 At June 30, 2004, we had 1,725,503 shares authorized and reserved for future
issuance under all of our stock incentive plans, including outstanding
options under the Omnibus Plan and our prior stock option plans. NOTE 11  DIVIDENDS During fiscal 2004, we declared dividends as set forth in the following table: Declaration Date
    
    Record Date
    
    Payable Date
    
    Dividend per ShareAugust 12, 2003
    
    September 30, 2003
    
    October 31, 2003
    
    $
    0.025October 15, 2003
    
    December 31, 2003
    
    January 22, 2004
    
    $
    0.025January 22, 2004
    
    March 31, 2004
    
    April 20, 2004
    
    $
    0.025April 22, 2004
    
    June 30, 2004
    
    July 20, 2004
    
    $
    0.025
 30




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 12  PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS Preferred Stock Without any further action by the holders of our common stock, our Board of
Directors is authorized to approve and determine the issuance of
preferred stock, as well as the dividend rights, dividend rate, conversion or
exchange rights, voting rights, rights and terms of redemption, liquidation
preferences and sinking fund terms of any series of preferred stock, the number
of shares constituting any series of preferred stock and the
designation thereof. No shares of preferred stock have been issued. In
connection with the adoption of our Preferred Share Purchase Rights Plan
(the Rights Plan), we have designated and reserved for issuance upon exercise
of such rights 150,000 shares of Series A Junior Participating
Cumulative Preferred Stock. Should the Board of Directors elect to exercise its authority to issue any
additional series of preferred stock, the rights, preferences and privileges of
holders of our common stock would be made subject to the rights, preferences
and privileges of such additional series. Preferred Share Purchase Rights Prior to the spin-off of the Company, our Board of Directors authorized the
Rights Plan. In conjunction with the spin-off, each share of our common
stock was distributed with one preferred share purchase right (collectively,
the Rights), which entitles the registered holder to purchase from the
Company one one-hundredth (1/100) of a share of Series A Junior Participating
Cumulative Preferred Stock at a price of $36 per one one-hundredth
(1/100) of a share, subject to adjustment. The Rights Plan is designed to deter
coercive or unfair takeover tactics and to prevent an acquirer from
gaining control of the Company without offering a fair price to all of our
stockholders. The Rights will cause substantial dilution to a person or group
that attempts to acquire the Company on terms not approved by our Board of
Directors, except pursuant to an offer conditioned upon a substantial
number of Rights being acquired. The description and terms of the Rights are
set forth in a Rights Agreement between the Company and BankBoston
N.A., as Rights Agent. On November 2, 1999, our Board of Directors renewed the Rights Plan. The
amended and restated Rights Plan was adopted in the normal course of
updating and extending the predecessor Rights Plan, which was scheduled to
expire on December 31, 2000, and not in response to any acquisition
proposal. The expiration date of the Rights Plan was extended to October 19,
2009. The amended and restated Rights Plan was altered to reflect
prevailing stockholder Rights Plan terms, such as lowering the share ownership
level which triggers the exercise of the Rights and eliminating the
continuing director provision. The amended and restated Rights Plan provides
for an increase in the exercise price of the Rights under the Rights Plan
from $36.00 to $70.00. NOTE 13  DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION We sell our products to a variety of retail outlets, including mass merchants,
national chain stores, major department stores, mens and womens
specialty stores, catalog retailers, grocery stores, drug stores, golf pro
shops, sporting goods stores and the retail exchange operations of the
United States military. Our Company and our corresponding customer
relationships are organized along mens and womens product lines. As a
result, we have two reportable segments: (1) mens accessories, consisting of
belts, wallets, suspenders and other small leather goods, and
(2) womens accessories, consisting of belts, wallets, handbags, socks,
scarves, hats and hair accessories. General corporate expenses are
allocated to each segment based on the respective segments asset base.
Depreciation and amortization expense related to assets recorded on
our corporate accounting records are allocated to each segment as described
above. Management measures profit or loss on each segment
based upon income or loss before taxes, utilizing accounting policies
consistent in all material respects with those described in Note 1.
No inter-segment revenue is recorded. 31




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 13  DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued) Information regarding operations and assets by reportable segment is as follows (dollars in thousands): Year Ended June 30,2004
    
    2003
    
    2002Revenue from external customers:Mens accessories
    
    $
    113,558
    
    
    $
    108,816
    
    
    $
    107,525Womens accessories
    
    
    101,862
    
    
    
    115,671
    
    
    
    98,244$
    215,420
    
    
    $
    224,487
    
    
    $
    205,769Operating income (1):Mens accessories
    
    $
    12,612
    
    
    $
    8,500
    
    
    $
    8,528Womens accessories
    
    
    1,099
    
    
    
    6,871
    
    
    
    4,857$
    13,711
    
    
    $
    15,371
    
    
    $
    13,385Interest expense
    
    $
    (2,357
    )
    
    $
    (2,833
    )
    
    $
    (3,152
    )Other income (2)
    
    
    128
    
    
    
    101
    
    
    
    70Income before income taxes and cumulative effect of
accounting change
    
    $
    11,482
    
    
    $
    12,639
    
    
    $
    10,303Depreciation and amortization expense:Mens accessories
    
    $
    2,137
    
    
    $
    2,351
    
    
    $
    3,382Womens accessories
    
    
    1,918
    
    
    
    1,916
    
    
    
    1,999$
    4,055
    
    
    $
    4,267
    
    
    $
    5,381Capital expenditures:Mens accessories
    
    $
    475
    
    
    $
    331
    
    
    $
    274Womens accessories
    
    
    1,102
    
    
    
    335
    
    
    
    1,596Corporate
    
    
    1,541
    
    
    
    1,778
    
    
    
    1,120$
    3,118
    
    
    $
    2,444
    
    
    $
    2,990Total assets:Mens accessories
    
    $
    70,144
    
    
    $
    71,275
    
    
    $
    65,201Womens accessories
    
    
    44,584
    
    
    
    55,997
    
    
    
    46,157Corporate
    
    
    20,846
    
    
    
    20,714
    
    
    
    21,420$
    135,574
    
    
    $
    147,986
    
    
    $
    132,778
  (1)
    
    Operating income 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. 32




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 13  DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued) Our net revenues, total assets and property, plant and equipment as of June 30,
2004, 2003 and 2002, by geographic location, were as follows
(dollars in thousands): 2004
    
    2003
    
    2002Net revenues:United States
    
    $
    208,570
    
    
    $
    217,849
    
    
    $
    199,013Canada (1)
    
    
    6,850
    
    
    
    6,638
    
    
    
    6,756$
    215,420
    
    
    $
    224,487
    
    
    $
    205,769Total assets:United States
    
    $
    129,686
    
    
    $
    142,361
    
    
    $
    127,609Canada (1)
    
    
    5,888
    
    
    
    5,625
    
    
    
    5,169$
    135,574
    
    
    $
    147,986
    
    
    $
    132,778Property, plant and equipment, at cost:United States
    
    $
    34,089
    
    
    $
    31,426
    
    
    $
    29,061Canada (1)
    
    
    492
    
    
    
    459
    
    
    
    380$
    34,581
    
    
    $
    31,885
    
    
    $
    29,441
  (1)
    
    Sales 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 During fiscal 2004, 2003 and 2002, we purchased inventory of approximately
$44,327,000, $53,307,000 and $35,221,000, respectively, from a
supplier who is a stockholder of the Company. At June 30, 2004 and 2003, the
total purchase amount listed above also included unpaid invoices
in the amount of $4,478,000 and $1,314,000, respectively. The merchandise is
purchased at amounts which we believe approximate fair market
value. Although the potential exposure for product flow interruption may be
significant in the event of loss of such supplier, this exposure is mitigated
because the inventory may be purchased from various other sources. 33




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 15  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) A summary of our quarterly financial data (dollars in thousands, except per
share amounts) for the two years ended June 30, 2004, is
set forth below: First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterFiscal 2004Net sales
    
    $
    64,232
    
    
    $
    64,159
    
    
    $
    42,560
    
    
    $
    44,469Gross profit
    
    
    21,630
    
    
    
    22,081
    
    
    
    15,383
    
    
    
    16,191Income before income taxes
    
    
    4,691
    
    
    
    6,358
    
    
    
    225
    
    
    
    208Net income
    
    $
    2,845
    
    
    $
    3,909
    
    
    $
    132
    
    
    $
    151Earnings per common share
    
    $
    .47
    
    
    $
    .63
    
    
    $
    .02
    
    
    $
    .02Earnings per common share  assuming dilution
    
    $
    .45
    
    
    $
    .61
    
    
    $
    .02
    
    
    $
    .02
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterFiscal 2003Net sales
    
    $
    60,028
    
    
    $
    66,222
    
    
    $
    47,011
    
    
    $
    51,226Gross profit
    
    
    20,785
    
    
    
    23,229
    
    
    
    16,512
    
    
    
    17,562Income before income taxes and cumulative
effect of accounting change
    
    
    3,922
    
    
    
    5,935
    
    
    
    1,694
    
    
    
    1,088Net income before cumulative effect of
accounting change
    
    $
    2,395
    
    
    $
    3,627
    
    
    $
    1,032
    
    
    $
    663Cumulative effect of accounting change forSFAS No. 142, net of income taxes
    
    
    (581
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    1,814
    
    
    $
    3,627
    
    
    $
    1,032
    
    
    $
    663Earnings per common share:Before cumulative effect of accounting change
    
    $
    .41
    
    
    $
    .61
    
    
    $
    .17
    
    
    $
    .11Cumulative effect of accounting change
    
    
    (.10
    )
    
    
    
    
    
    
    
    
    
    
    $
    .31
    
    
    $
    .61
    
    
    $
    .17
    
    
    $
    .11Earnings per common share  assuming dilution:Before cumulative effect of accounting change
    
    $
    .40
    
    
    $
    .60
    
    
    $
    .17
    
    
    $
    .11Cumulative effect of accounting change
    
    
    (.10
    )
    
    
    
    
    
    
    
    
    
    
    $
    .30
    
    
    $
    .60
    
    
    $
    .17
    
    
    $
    .11
 34




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##### 



(NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRAPHIC) Notes To Consolidated Financial Statements
Tandy Brands Accessories, Inc. and Subsidiaries NOTE 16  SUBSEQUENT EVENTS On July 1, 2004, we completed our previously announced acquisition of all the
equity interest in Superior. The total purchase price was $10,000,000
and was funded entirely with cash. In addition, we retired all of Superiors
outstanding debt totaling approximately $806,000. Superior, which also
operates under the name of ETON®, primarily markets and distributes mens and
womens gift accessories under both the ETON® and the licensed
totes® brands. We estimate that goodwill from this acquisition will be
approximately $7,500,000. The pro forma effects of this acquisition are not
material. For fiscal 2005 we will report the operating results of Superior
under our mens accessories reporting segment. On August 12, 2004, our Board of Directors declared the Companys fifth
consecutive quarterly dividend. The dividend of $0.0275 per share will be
payable to stockholders of record as of September 30, 2004. The payment of the
dividend will occur on October 19, 2004. On August 26, 2004, we amended our committed secured revolving credit facility
with certain financial institutions. The amendment extended
the expiration of our agreement from November 30, 2006, to November 30, 2007,
and increased the facility from $60,000,000 to $85,000,000.
Of this amount, $10,000,000 is a sub-limit of the credit facility (swing
line) which may be used for same-day advances to be provided solely
by the administrative agent (a financial institution) of the credit facility.
Both the credit facility and swing line bear interest at variable rates with
short-term durations. The credit facility may be used for borrowings and
letters of credit. The amended facility contains an accordion feature to
increase the facility by up to an additional $25,000,000 by adding a financial
institution at a later date. Although the previous credit facility was
secured by substantially all of our assets and the assets of our subsidiaries,
the amended facility is unsecured. The amended facility requires
the maintenance of certain financial covenants which, if not met, could
adversely impact our liquidity. Our amended credit facility permits the
payment of dividends and does not require us to enter into an interest rate
swap agreement against the borrowings under the credit facility. The
credit facility also includes a commitment fee based on certain financial
performance objectives ranging from 20 to 37.5 basis points on the
unused balance. Principal payments on the credit facility are due on the
expiration date. The amended credit facility is guaranteed by all of our
subsidiaries, except our Canadian subsidiary. 35




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##### 



(REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM GRAPHIC) Report of Independent Registered Public Accounting Firm
Tandy Brands Accessories, Inc. and Subsidiaries To the Board of Directors of Tandy Brands Accessories, Inc. We have audited the accompanying consolidated balance sheets of Tandy Brands
Accessories, Inc. and subsidiaries as of
June 30, 2004 and 2003, and the related consolidated statements of income,
stockholders equity and cash flows for each
of the three years in the period ended June 30, 2004. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial
position of Tandy Brands Accessories, Inc. and subsidiaries at June 30, 2004
and 2003, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2004, in conformity with U.S. generally
accepted accounting principles. As described in Note 1 to the consolidated financial statements, effective July
1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. (ERNST & YOUNG LLP SIGNATURE) Fort Worth, Texas
July 30, 2004, except for footnote 16,
as to which the date is August 26, 2004 36




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##### 



(REPORT OF MANAGEMENT GRAPHIC) Report of Management
Tandy Brands Accessories, Inc. and Subsidiaries TO OUR STOCKHOLDERS: Management is responsible for the preparation and the integrity of the
accompanying consolidated financial statements and related
notes, which have been prepared in accordance with accounting principles
generally accepted in the United States and include
amounts based upon our estimates and judgments, as required. The consolidated
financial statements have been audited by
Ernst & Young LLP, our independent registered public accounting firm. In
connection with their audits we have made available to
Ernst & Young LLP all financial records and related data. The accompanying
independent auditors report expresses an independent
professional opinion on the fairness of presentation of managements financial
statements. Management maintains a system of internal controls over financial reporting. We
believe this system provides reasonable assurance
that transactions are properly recorded and reported in the financial
statements, assets are properly safeguarded and accounted for,
and records are maintained so as to permit preparation of financial statements
in accordance with accounting principles generally
accepted in the United States. The Board of Directors, through the activities of its Audit Committee
consisting solely of independent directors, provides oversight of
the process of reporting financial information. The committee meets
periodically with management and our independent registered
public accounting firm and internal auditors to review internal accounting
controls, audit results, financial reporting, and accounting
principles and practices. Both our independent and internal auditors have full
and free access to the Audit Committee, with and
without management present. (J.S.B. JENKINS SIGNATURE)
President and Chief Executive Officer
    
    (MARK J. FLAHERTY SIGNATURE)
Chief Financial Officer
 37




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##### 



(MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GRAPHIC) Managements Discussion and Analysis of Financial Condition
and Results of Operations Graphic
Tandy Brands Accessories, Inc. and Subsidiaries General Tandy Brands Accessories, Inc. is a leading designer, manufacturer and marketer
of branded mens, womens and childrens accessories, including
belts and small leather goods such as wallets. Our product line also includes
handbags, socks, scarves, gloves, hats, hair accessories, suspenders,
cold weather accessories and sporting goods accessories. Our merchandise is
marketed under a broad portfolio of nationally recognized licensed
and proprietary brand names, including DOCKERS®, LEVIS®, LEVI STRAUSS
SIGNATURE, JONES NEW YORK®, ROLFS®, HAGGAR®, WOOLRICH®,
JORDACHE®, BUGLE BOY®, CANTERBURY®, PRINCE GARDNER®, PRINCESS GARDNER®, AMITY®,
STAGG®, ACCESSORY DESIGN GROUP® and TIGER®, as
well as private brands for major retail customers. We sell our products through
all major retail distribution channels throughout the United States and
Canada, including mass merchants, national chain stores, department stores,
mens and womens specialty stores, catalog retailers, grocery stores,
drug stores, golf pro shops, sporting goods stores and the retail exchange
operations of the United States military. Our Company and our corresponding customer relationships are organized along
mens and womens product lines. As a result, we have two
reportable segments: (1) mens accessories, consisting of belts, wallets,
suspenders and other small leather goods, and (2) womens accessories,
consisting of belts, wallets, handbags, socks, scarves, hats and hair
accessories. The following provides an overview of sales and gross margin data
from our reportable segments for fiscal 2004 compared to the previous two
fiscal years (see Note 13 to our consolidated financial statements for
certain other financial information with regard to our mens and womens
accessories segments): Year Ended June 30,2004
    
    2003
    
    2002(Dollars in thousands)Net sales:Mens accessories
    
    $
    113,558
    
    
    $
    108,816
    
    
    $
    107,525Womens accessories
    
    
    101,862
    
    
    
    115,671
    
    
    
    98,244Total net sales
    
    $
    215,420
    
    
    $
    224,487
    
    
    $
    205,769Gross margin:Mens accessories
    
    $
    44,360
    
    
    $
    41,409
    
    
    $
    40,236Womens accessories
    
    
    30,925
    
    
    
    36,679
    
    
    
    31,827Total gross margin
    
    $
    75,285
    
    
    $
    78,088
    
    
    $
    72,063Gross margin as percentage of sales:Mens accessories
    
    
    39.1
    %
    
    
    38.1
    %
    
    
    37.4
    %Womens accessories
    
    
    30.4
    %
    
    
    31.7
    %
    
    
    32.4
    %Total
    
    
    34.9
    %
    
    
    34.8
    %
    
    
    35.0
    %
 The principal market for our common stock is the NASDAQ National Market System.
Our common stock is listed on the NASDAQ National Market
under the symbol TBAC. As of September 1, 2004, we had approximately 861
stockholders of record. Challenges and Opportunities Fiscal 2004 presented many challenges and opportunities for us. Downward
pressure on womens accessories inventory replenishment by mass
merchant customers, competitive market pressures and weakened trends in womens
fashion accessories contributed to a decrease in sales
compared to fiscal 2003. However, this decrease was offset in part by strong
sales in mens accessories. We continue to seek increased accessory
sales and earnings in both our mens and womens segments through a variety of
means, including increased sales through our current operating
units as well as growth through acquisitions of similar businesses. We
anticipate a return to normalized sales and earnings growth for our womens
accessories segment during the course of fiscal 2005. To that end, on May 10, 2004, we announced that we were entering the mens
neckwear business, utilizing a direct-to-retailer sales model. We
plan to design and promote mens neckties which will be manufactured overseas
and shipped directly to our retail customers in the United States,
allowing our pricing to be very competitive compared to established neckwear
suppliers. In addition, on June 3, 2004, we announced our agreement
to acquire Superior Merchandise Company (Superior). Through this acquisition,
which was completed on July 1, 2004, we have added gift
accessories to our product line that we will sell under the ETON® and licensed
totes® brands. We also initiated a quarterly dividend program that resulted in payments to our
stockholders of $.025 per share in each quarter of fiscal 2004. On
August 12, 2004, our Board of Directors declared a dividend for the first
quarter of fiscal 2005 of $.0275 per share, payable to stockholders of record
as of September 30, 2004. This dividend reflects a 10% increase over the
dividend paid in the same period last year. As you read the following discussion and analysis, you should refer to our
consolidated financial statements and the accompanying notes presented
elsewhere in this Annual Report. 38




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##### 



(MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION GRAPHIC) 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 The following table illustrates sales and gross margin data from our reportable
segments for the year ended June 30, 2004, compared to last year: Year Ended June 30,% Increase/2004
    
    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 percentage of sales:Mens accessories
    
    
    39.1
    %
    
    
    38.1
    %
    
    
    1.0
    %Womens accessories
    
    
    30.4
    %
    
    
    31.7
    %
    
    
    (1.3
    %)Total
    
    
    34.9
    %
    
    
    34.8
    %
    
    
    0.1
    %
 Net sales decreased $9.1 million compared to last year. The overall decrease
was attributable to lower sales volume in womens mass merchant
accessories. Net sales of mens accessories increased $4.7 million compared to
last year due to higher mens and boys mass merchant belt sales
during fiscal 2004. Net sales of womens accessories decreased $13.8 million
due to lower sales to mass merchants during fiscal 2004. The shortfall
in our womens mass merchant category was due to downward pressure on inventory
replenishment by mass merchant customers, competitive
market pressures and fewer item-driven fashion trends. Gross margins decreased $2.8 million in fiscal 2004 compared to fiscal 2003.
This decrease was primarily due to the decrease in womens
accessories gross margins which decreased $5.8 million, or 15.7%, in fiscal
2004 compared to fiscal 2003. The decrease in gross margins for
womens accessories was due to higher than anticipated customer allowances and
direct sales shipments of womens accessories to Target and
Payless ShoeSource, which have lower than average gross margins. The decrease
in gross margins for womens accessories was offset by gross
margins for mens accessories, which increased $3.0 million compared to last
year. The improvement in gross margins for mens accessories was
due to an increase in margins for department store sales of mens belts, small
leather goods and accessory assortments compared to last year.
Although we anticipate gross margin percentages to approximate historical
levels in future periods, any material changes in sales mix, such as higher
mass merchant accessory sales or direct shipments, could lower our gross margin
percentages during a particular season. Operating Expenses The following table illustrates selling, general and administrative expenses
and depreciation and amortization expenses for our reportable segments
for fiscal 2004 compared to fiscal 2003: Year Ended June 30,% Increase/2004
    
    2003
    
    (Decrease)(Dollars in thousands)Selling, general and 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
    %)
 39




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##### 



(MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION GRAPHIC) Managements Discussion and Analysis of Financial Condition
and Results of Operations
Tandy Brands Accessories, Inc. and Subsidiaries Selling, general and administrative expenses decreased $0.9 million in fiscal
2004 compared to fiscal 2003. This decrease was due primarily to a
bad debt recovery of approximately $651,000 arising from a customers
bankruptcy court settlement and payment of accounts receivable that we
had previously reserved. Other decreases in expenses were attributable to
variable costs related to lower sales, such as reduced royalty, customer
freight and shipping supplies expense during fiscal 2004 compared to the prior
year. Telecommunication expense also decreased by approximately
$300,000 due to the change to web-based EDI transmissions. Depreciation and amortization expense decreased due to certain intangibles that
were fully amortized during the prior fiscal year, having reached the
end of their useful lives. Interest expense for fiscal 2004 decreased $0.5 million compared to fiscal
2003. This decrease was primarily related to lower interest rates as well
as lower debt levels compared to the prior year. The effective tax rates for fiscal 2004 and fiscal 2003 were 38.7% and 38.9%,
respectively. The effective tax rate was lower for 2004 due to lower
effective state and local tax rates. Net Income Net income for fiscal 2004 decreased 8.8% to $7.0 million, or $1.10 per diluted
share, compared to net income of $7.7 million, or $1.28 per
diluted share, for fiscal 2003, before the cumulative effect of accounting
change resulting from the adoption of SFAS No. 142. During fiscal 2003
we recorded the cumulative effect of an accounting change resulting from the
adoption of SFAS No. 142 in the amount of $581,000, net of tax. Net
income for fiscal 2003, including the cumulative effect of the accounting
change, was $7.1 million, or $1.18 per diluted share. The decrease in net
income in fiscal 2004 was primarily due to reduced sales of womens mass
merchant accessories. FISCAL 2003 COMPARED TO FISCAL 2002 Net Sales and Gross Margin The following table illustrates sales and gross margin data from our reportable
segments for the year ended June 30, 2003, compared to the year ended June 30, 2002: Year Ended June 30,% Increase/2003
    
    2002
    
    (Decrease)(Dollars in thousands)Net sales:Mens accessories
    
    $
    108,816
    
    
    $
    107,525
    
    
    
    1.2
    %Womens accessories
    
    
    115,671
    
    
    
    98,244
    
    
    
    17.7
    %Total net sales
    
    $
    224,487
    
    
    $
    205,769
    
    
    
    9.1
    %Gross margin:Mens accessories
    
    $
    41,409
    
    
    $
    40,236
    
    
    
    2.9
    %Womens accessories
    
    
    36,679
    
    
    
    31,827
    
    
    
    15.2
    %Total gross margin
    
    $
    78,088
    
    
    $
    72,063
    
    
    
    8.4
    %Gross margin as a percentage of sales:Mens accessories
    
    
    38.1
    %
    
    
    37.4
    %
    
    
    0.7
    %Womens accessories
    
    
    31.7
    %
    
    
    32.4
    %
    
    
    (0.7
    %)Total
    
    
    34.8
    %
    
    
    35.0
    %
    
    
    (0.2
    %)
 Net sales increased $18.7 million in fiscal 2003 compared to fiscal 2002. The
overall increase was attributable to higher sales volume in existing
womens product lines. Net sales of mens accessories increased $1.3 million in
fiscal 2003 compared to the previous year. This sales increase
was attributable to higher mens mass merchant accessories sales during the
first two quarters of fiscal 2003. Net sales of womens accessories
increased $17.4 million in fiscal 2003 compared to fiscal 2002. During fiscal
2003, results were particularly strong in our womens department store
business, with small leather goods and branded belts, such as LEVIS®, DOCKERS®
and our ROLFS® handbags, selling well. Womens mass merchant
accessories generated especially strong results through the sale of handbags,
socks, fashion hosiery and other accessories that successfully
reflected the latest fashion trends. Due to the continued fashion trend in
womens belts, the womens mass merchant accessory division accounted
for $11.5 million of the $17.4 million overall increase in womens accessories
net sales. 40




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##### 



(MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION GRAPHIC) Managements Discussion and Analysis of Financial Condition
and Results of Operations
Tandy Brands Accessories, Inc. and Subsidiaries Gross margins increased $6.0 million in fiscal 2003 compared to fiscal 2002. As
a percentage of sales, gross margins decreased 0.2% in fiscal 2003
compared to the previous year. Gross margins for mens accessories and womens
accessories increased $1.2 million and $4.8 million, respectively,
in fiscal 2003 compared to fiscal 2002. As a percentage of sales, mens
accessories gross margins increased 0.7% in fiscal 2003 compared to fiscal
2002. This improvement was due to an increase in the higher margin department
store sales of mens small leather goods and belts compared to the
previous year. Womens accessories gross margins as a percentage of sales
decreased 0.7% in fiscal 2003 compared to fiscal 2002. This decrease
was due to a greater sales mix weighted towards womens mass merchant
accessories during fiscal 2003, higher than anticipated customer
allowances and direct sales shipments of womens accessories to Payless
ShoeSource, which have lower than average gross margins. Operating Expenses The following table illustrates selling, general and administrative expenses
and depreciation and amortization expenses for our reportable segments
for fiscal 2003 compared to 2002: Year Ended June 30,% Increase/2003
    
    2002
    
    (Decrease)(Dollars in thousands)Selling, general and administrative expenses:Mens accessories
    
    $
    30,384
    
    
    $
    28,343
    
    
    
    7.2
    %Womens accessories
    
    
    28,066
    
    
    
    24,954
    
    
    
    12.5
    %Total
    
    $
    58,450
    
    
    $
    53,297
    
    
    
    9.7
    %Depreciation and amortization expense:Mens accessories
    
    $
    2,351
    
    
    $
    3,382
    
    
    
    (30.5
    %)Womens accessories
    
    
    1,916
    
    
    
    1,999
    
    
    
    (4.2
    %)Total
    
    $
    4,267
    
    
    $
    5,381
    
    
    
    (20.7
    %)Interest expense
    
    $
    2,833
    
    
    $
    3,152
    
    
    
    (10.1
    %)
 Selling, general and administrative expenses increased $5.2 million in fiscal
2003 compared to fiscal 2002. This increase resulted primarily from
nonrecurring costs associated with the implementation of distribution software
in our Dallas, Texas, distribution center totaling $290,000 and higher
compensation expenses, including severance costs totaling $430,000 and
management bonus expenses which exceeded that of the prior year by
$482,000. Other expense increases were variable costs related to increased
sales during fiscal 2003, compared to the prior year. Depreciation and amortization expenses as a percentage of net sales for fiscal
2003 decreased 0.7% compared to fiscal 2002. We attribute this
decrease primarily to the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets, pursuant to which goodwill is no longer amortized. See
Note 8 to our consolidated financial statements. Goodwill amortization expense
for 2002 was approximately $1,000,000. Interest expense for fiscal 2003 decreased $0.3 million compared to fiscal
2002. This decrease was primarily related to lower interest rates as well
as lower debt levels compared to the same period in the prior year. The effective tax rate for fiscal 2003 was 38.9%, which was consistent with the
same period in the prior year. Net Income Net income for fiscal 2003 increased 13.4% to $7.1 million, or $1.18 per
diluted share, compared to net income of $6.3 million, or $1.08 per diluted
share, for fiscal 2002. Net income, before the cumulative effect of accounting
change resulting from the adoption of SFAS No. 142, for fiscal 2003
increased 22.6% to $7.7 million, or $1.28 per diluted share, compared to net
income of $6.3 million, or $1.08 per diluted share, for fiscal 2002. The
increase in fiscal 2003 net income was due primarily to the overall increase in
womens accessories net sales. In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. Under the new rules, goodwill is no longer amortized but is
reviewed annually for impairment. Separable intangible assets that do not have
an indefinite life will continue to be amortized over their useful lives. The adoption of SFAS No. 142 is considered a change in accounting principle.
The cumulative effect of adopting this standard resulted in a
non-cash, after-tax charge in the first quarter of fiscal 2003 of $581,000, or
$(0.10) per diluted share, which does not affect our on-going
operations. The adoption of SFAS No. 142 will result in an annual reduction in
amortization expense of approximately $1,000,000 due to
goodwill no longer being amortized. 41




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##### 



(MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GRAPHIC) Managements Discussion and Analysis of Financial Condition
and Results of Operations Graphic
Tandy Brands Accessories, Inc. and Subsidiaries LIQUIDITY AND CAPITAL RESOURCES During fiscal 2004, our operating activities provided cash of $23.0 million
compared to a $2.0 million use of cash during fiscal 2003. The cash
provided from operations during fiscal 2004 was attributable to reduced
inventory levels and lower accounts receivable at June 30, 2004, due to the
timing of customer payments. The usage of cash during fiscal 2003 was
attributable to the timing of womens fall season inventory procurement,
higher inventory commitments to support required stock levels for certain key
retail customers and accounts receivable related to shipments
completed during the fourth quarter of fiscal 2003. Historically, we have
generated less cash flow from operations during periods of growth, such
as post integration of acquisitions or increased inventory commitments related
to certain key retail customers. We anticipate this trend to continue
in the future in light of our acquisition of Superior during fiscal 2005. See
Note 16 to our consolidated financial statements and the Subsequent
Events section that follows for additional information about our acquisition
of Superior on July 1, 2004, for $10,000,000 in cash and the retirement
of $806,000 of Superiors debt. Capital expenditures totaled $3.1 million for fiscal 2004 compared to $2.4
million for fiscal 2003. We attribute this increase to the implementation
of a new software application at our West Bend, Wisconsin, distribution center
and the purchase of additional computer hardware and leasehold
improvements at our distribution center in Dallas, Texas, during fiscal 2004.
We anticipate that our capital expenditures for fiscal 2005 will
approximate our capital investments of property and equipment completed during
fiscal 2004. We expect to fund such capital commitments through
cash flows from operations and drawing on our existing credit facility. The primary sources of liquidity for our various expenditures have been cash
flows from operations and borrowings under bank credit arrangements.
As of June 30, 2004, we had a $60,000,000 committed secured revolving credit
facility that could be used for general corporate purposes, including
working capital requirements, acquisition activities and funding of letters of
credit. The credit facility was secured by substantially all of our assets
and the assets of our subsidiaries and required the maintenance of certain
financial covenants, which if not met, could adversely impact our liquidity.
On August 26, 2004, we amended our credit facility. See Notes 5 and 16 to our
consolidated financial statements and the Subsequent Events
section that follows. We also have a Canadian line of credit for approximately
$746,000 secured by a letter of credit from a U.S. bank. As of June 30,
2004, we had credit availability under our credit facilities of approximately
$45,600,000. See Note 5. Under the above credit facilities, future payments required for debt maturities
would be $10,000,000 in fiscal year 2007. We believe we have adequate financial resources and access to sufficient credit
facilities to satisfy our future working capital needs. While we did not declare any dividends in fiscal 2003, during fiscal 2004, we
declared dividends as set forth in the following table: Declaration Date
    
    Record Date
    
    Payable Date
    Dividend per ShareAugust 12, 2003
    
    September 30, 2003
    
    October 31, 2003
    
    $
    0.025October 15, 2003
    
    December 31, 2003
    
    January 22, 2004
    
    $
    0.025January 22, 2004
    
    March 31, 2004
    
    April 20, 2004
    
    $
    0.025April 22, 2004
    
    June 30, 2004
    
    July 20, 2004
    
    $
    0.025
 We expect that quarterly dividends will continue to be paid in fiscal 2005. See
Note 16 to our consolidated financial statements and the Subsequent
Events section that follows. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to interest rate risk on our long-term debt. The effect of a
one-percent increase or decrease in the interest rate on our long-term
debt could lower or increase our operating results by $100,000. We manage our
exposure to changes in interest rates. We hedged our exposure
to changes in interest rates on a portion of our variable debt by entering into
an interest rate swap agreement to lock in a fixed interest rate for a
portion of these borrowings. On July 1, 2001, we entered into a three-year
interest rate swap agreement with the administrative agent of our credit
facility, converting $30,000,000 of outstanding indebtedness from a variable to
a fixed interest rate. The average receive rate was based on a 90-day
LIBOR rate. At June 30, 2003, the receive and pay rates related to the interest
rate swap were 1.29% and 5.60%, respectively. Interest differentials
paid or received under the swap agreement are reflected as an adjustment to
interest expense when paid. Prior to June 26, 2003, the interest rate
swap agreement represented a valid cash flow hedge investment under SFAS No.
133. As such, during fiscal 2003, changes in the fair value of the
interest rate swap were recognized in other comprehensive income. As of June
27, 2004, the interest rate swap agreement expired and is therefore
not reflected on our balance sheet at June 30, 2004. The fair value of the swap
agreement at June 30, 2003, was approximately ($1,665,000), and
was included in accrued liabilities at June 30, 2003. At June 30, 2003 and
2002, the balance in other comprehensive income, related to the swap
agreement, was approximately ($1,019,000), net of tax of $646,000, and
($1,041,000), net of tax of $659,000, respectively. We do not expect the
potential impact of market conditions on the fair value of our indebtedness to
be material. 42




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##### 



(MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GRAPHIC) Managements
Discussion and Analysis of Financial Condition
and Results of Operations Graphic
Tandy Brands Accessories, Inc. and Subsidiaries In addition to interest rate risk on our long-term debt, we are also exposed to
market risk with respect to changes in the global price level of certain
commodities used in the production of our products. We routinely purchase
leather hides during the year for use in the manufacture of mens belts.
We also purchase a substantial amount of leather items from third-party
suppliers. An unanticipated material increase in the market price of leather
could increase the cost of these products to us and therefore have a negative
effect on our results of operations. CONTRACTUAL OBLIGATIONS The following is a summary of our significant contractual cash obligations for
the periods indicated that existed as of June 30, 2004, and, except for
purchase obligations, is based on information appearing in the notes to our
consolidated financial statements (dollars in thousands): Less than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsLong-term debt (1)
    
    $
    10,000
    
    
    $
    
    
    
    $
    10,000
    
    
    $
    
    
    
    $
    Operating leases (2)
    
    
    8,887
    
    
    
    1,712
    
    
    
    3,519
    
    
    
    3,096
    
    
    
    560Payments under royalty licenses (2)
    
    
    4,062
    
    
    
    1,897
    
    
    
    2,165
    
    
    
    
    
    
    
    Supplemental Executive Retirement Plan
    
    
    2,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,285Purchase obligations (3)
    
    
    34,094
    
    
    
    34,094
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    59,328
    
    
    $
    37,703
    
    
    $
    15,684
    
    
    $
    3,096
    
    
    $
    2,845
  (1)
    
    Our current interest rate is 2.82%. Interest on the debt above is expensed
and paid monthly. See Subsequent Events
section that follows for additional information on our long-term debt.(2)
    
    See Note 7 to our consolidated financial statements for a discussion of our
future minimum rental and royalty commitments.(3)
    
    Purchase orders in the ordinary course of business that may be cancelled
without penalty. Purchase obligations
include outstanding letters of credit of $4.5 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 We do not have any off-balance sheet arrangements. CRITICAL ACCOUNTING POLICIES We consider an accounting estimate to be critical if: (1) the accounting
estimate requires us to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made, and (2) changes in the
estimate that are reasonably likely to occur from period to period,
or use of different estimates that we reasonably could have used in the current
period, would have a material impact on our financial condition or
results of operations. Management has discussed the development and selection
of these critical accounting estimates with the Audit Committee of
our Board of Directors. In addition, there are other items within our financial
statements that require estimation, but are not deemed critical as defined
above. Changes in estimates used in these and other items could have a material
impact on our financial statements. The use of estimates is pervasive throughout the consolidated financial
statements, but the accounting policies and estimates considered most
critical are as follows: Revenues We recognize revenue when merchandise is shipped and title to the goods has
passed to the customer. We record allowances, including cash
discounts, in-store customer allowances, cooperative advertising allowances and
customer returns, at the time the revenue is recognized, based
upon historical experience, current trends in the retail industry and
individual customer and product experience. We perform periodic credit evaluations of our customers financial conditions
and reserve against accounts deemed uncollectible based upon
historical losses and customer specific events. After all collection efforts
are exhausted and the account is deemed uncollectible, it is written off
against the reserve for doubtful accounts. Credit losses have historically been
within managements expectations and we generally do not require
collateral. During fiscal 2004, we recorded a bad debt recovery of
approximately $651,000 arising from a customers bankruptcy court settlement
and payment of accounts receivable that we had previously reserved. 43




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##### 



(MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GRAPHIC) Managements
Discussion and Analysis of Financial Condition
and Results of Operations
Tandy Brands Accessories, Inc. and Subsidiaries Inventories Inventories are stated at the lower of cost (principally standard cost, which
approximates actual cost on a first-in, first-out basis) or market.
Cost includes materials, direct and indirect labor and factory overhead.
Market, with respect to raw materials, is replacement cost; and for
work-in-process and finished goods, it is net realizable value. If
circumstances arise in which the market value of items in inventory declines
below cost, an inventory markdown would be estimated and charged to expense in
the period identified. If we incorrectly anticipate these
trends or unexpected events occur, the results of operations could be
materially affected. We closely monitor fashion trend items and anticipate
additional inventory markdowns if market indications in fashion trends justify
further reserves. Historically, such inventory markdowns have been
within managements expectations. Goodwill We adopted the provisions of SFAS No. 142, effective July 1, 2002. This
Statement changed the accounting for goodwill and indefinite-lived intangible
assets from an amortization approach to an impairment-only approach. The SFAS
No. 142 goodwill impairment model is a two-step process. The first
step compares the fair value of a reporting unit that has goodwill assigned to
its carrying value. We estimate the fair value of a reporting unit using
discounted cash flow analysis. If the fair value of the reporting unit is
determined to be less than its carrying value, a second step is performed to
compute the amount of goodwill impairment, if any. Step two allocates the fair
value of the reporting unit to the reporting units net assets other than
goodwill. The excess of the fair value of the reporting unit over the amounts
assigned to its net assets other than goodwill is considered the implied
fair value of the reporting units goodwill. The implied fair value of the
reporting units goodwill is then compared to the carrying value of its
goodwill.
Any shortfall represents the amount of goodwill impairment. Using the SFAS No. 142 approach described above, we recorded a transitional
goodwill impairment charge during the first quarter of fiscal 2003
of $950,000 ($581,000, net of tax), presented as a cumulative effect of
accounting change. This charge related to our womens accessories
segment of products. We continually evaluate whether events and circumstances have occurred that
indicate the remaining balance of goodwill may not be recoverable.
In evaluating impairment, we estimate the sum of the expected future cash flows
derived from such goodwill. Such evaluations for impairment are
significantly impacted by estimates of future revenues, costs and expenses and
other factors. Derivatives Our risk management policy as it relates to derivative investments is to
mitigate, subject to market conditions, against interest rate risk. We do not
enter into any derivative investments for the purpose of speculative
investment. Our overall risk management philosophy is re-evaluated as business
conditions arise. SEASONALITY Historically, our quarterly sales and net income results are fairly consistent
throughout the fiscal year, with a seasonal increase during the first and
second quarter. The following table presents the percentage of the total annual
net sales and net income that occurred in each quarter of fiscal 2004
and 2003: First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet salesFiscal 2004
    
    
    29.8
    %
    
    
    29.8
    %
    
    
    19.8
    %
    
    
    20.6
    %Fiscal 2003
    
    
    26.7
    %
    
    
    29.5
    %
    
    
    21.0
    %
    
    
    22.8
    %Net Income (1)Fiscal 2004
    
    
    40.4
    %
    
    
    55.6
    %
    
    
    1.9
    %
    
    
    2.1
    %Fiscal 2003
    
    
    25.4
    %
    
    
    50.8
    %
    
    
    14.5
    %
    
    
    9.3
    %
  (1)
    
    Includes cumulative effect of accounting change for SFAS No. 142 of
($581,000), or ($.10) per diluted share, in fiscal 2003. INFLATION Although our operations are affected by general economic trends, we do not
believe that inflation has had a material effect on our operating results
during the past three fiscal years. 44




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##### 



(MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GRAPHIC) Managements Discussion and Analysis of Financial Condition
and Results of Operations
Tandy Brands Accessories, Inc. and Subsidiaries SUBSEQUENT EVENTS On July 1, 2004, we completed our previously announced acquisition of all the
equity interest in Superior. The total purchase price was $10,000,000 and
was funded entirely with cash. In addition, we retired all of Superiors
outstanding debt, totaling approximately $806,000. Superior, which also
operates
under the name of ETON®, primarily markets and distributes mens and womens
gift accessories under both the ETON® and the
licensed totes®brands.
We estimate goodwill from this acquisition will be approximately $7,500,000.
The pro forma effects of this acquisition are not material. For fiscal 2005 we
will report the operating results of Superior under our mens accessories
reporting segment. On August 12, 2004, our Board of Directors declared the Companys fifth
consecutive quarterly dividend. The dividend of $0.0275 per share will be
payable to stockholders of record as of September 30, 2004. The payment of the
dividend will occur on October 19, 2004. On August 26, 2004, we amended our committed secured revolving credit facility
with certain financial institutions. The amendment extended the
expiration of our agreement from November 30, 2006, to November 30, 2007, and
increased the facility from $60,000,000 to $85,000,000. Of
this amount, $10,000,000 is a sub-limit of the credit facility (swing line)
which may be used for same-day advances to be provided solely by the
administrative agent (a financial institution) of the credit facility. Both the
credit facility and swing line bear interest at variable rates with short-term
durations. The credit facility may be used for borrowings and letters of
credit. The amended facility contains an accordion feature to increase the
facility
by up to an additional $25,000,000 by adding a financial institution at a later
date. Although the previous credit facility was secured by substantially all
of our assets and the assets of our subsidiaries, the amended facility is
unsecured. The amended facility requires the maintenance of certain financial
covenants which, if not met, could adversely impact our liquidity. Our amended
credit facility permits the payment of dividends and does not require us to
enter into an interest rate swap agreement against the borrowings under the
credit facility. The credit facility also includes a commitment fee based on
certain financial performance objectives ranging from 20 to 37.5 basis points
on the unused balance. Principal payments on the credit facility are due on
the expiration date. The amended credit facility is guaranteed by all of our
subsidiaries, except our Canadian subsidiary. WEBSITE ACCESS TO COMPANY REPORTS Our website address is www.tandybrands.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, Forms
3, 4 and 5 filed by our officers, directors and stockholders holding 10% or
more of our common stock and all amendments to those reports are available
free of charge through our website, as soon as reasonably practicable after
such material is electronically filed with or furnished to the Securities and
Exchange Commission. FORWARD-LOOKING STATEMENTS This Managements Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this annual report contain forward-looking
statements that are based on current expectations, estimates and projections
about the industry in which we operate, managements beliefs and
assumptions made by management. Words such as expects, anticipates,
intends, plans, believes, seeks, estimates or variations of such
words and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecast in these forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. 45




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##### 



(SELECTED FINANCIAL DATA HEADER) Selected Financial Data
Tandy Brands Accessories, Inc. and Subsidiaries
(Dollars in thousands, except per share amounts) Year Ended June 30,2004
    
    2003
    
    2002
    
    2001
    
    2000Income Statement Data:Net sales
    
    $
    215,420
    
    
    $
    224,487
    
    
    $
    205,769
    
    
    $
    195,793
    
    
    $
    187,742Gross profit
    
    
    75,285
    
    
    
    78,088
    
    
    
    72,063
    
    
    
    65,761
    
    
    
    66,199Operating income
    
    
    13,711
    
    
    
    15,371
    
    
    
    13,385
    
    
    
    10,785
    
    
    
    15,257Interest expense
    
    
    2,357
    
    
    
    2,833
    
    
    
    3,152
    
    
    
    3,584
    
    
    
    3,236Net income before cumulative
effect of accounting change
    
    $
    7,037
    
    
    $
    7,717
    
    
    $
    6,293
    
    
    $
    4,440
    
    
    $
    8,649Cumulative effect of accounting
change for SFAS No. 142, net of income taxes (1)
    
    
    
    
    
    
    (581
    )
    
    
    
    
    
    
    
    
    
    
    Net income (2)
    
    $
    7,037
    
    
    $
    7,136
    
    
    $
    6,293
    
    
    $
    4,440
    
    
    $
    8,649Earnings per share:Before cumulative effect of
accounting change
    
    $
    1.13
    
    
    $
    1.30
    
    
    $
    1.09
    
    
    $
    0.79
    
    
    $
    1.50Cumulative effect of accounting change (1)
    
    
    
    
    
    
    (.10
    )
    
    
    
    
    
    
    
    
    
    
    $
    1.13
    
    
    $
    1.20
    
    
    $
    1.09
    
    
    $
    0.79
    
    
    $
    1.50Earnings per share  assuming dilution:Before cumulative effect of
accounting change
    
    $
    1.10
    
    
    $
    1.28
    
    
    $
    1.08
    
    
    $
    0.79
    
    
    $
    1.49Cumulative effect of
accounting change (1)
    
    
    
    
    
    
    (.10
    )
    
    
    
    
    
    
    
    
    
    
    $
    1.10
    
    
    $
    1.18
    
    
    $
    1.08
    
    
    $
    0.79
    
    
    $
    1.49Cash dividends per common share
    
    $
    .10
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Year Ended June 30,2004
    
    2003
    
    2002
    
    2001
    
    2000Balance Sheet Data:Working capital
    
    $
    81,635
    
    
    $
    89,282
    
    
    $
    78,217
    
    
    $
    86,383
    
    
    $
    80,085Total assets
    
    
    135,574
    
    
    
    147,986
    
    
    
    132,778
    
    
    
    136,984
    
    
    
    122,593Long-term debt
    
    
    10,000
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    47,400
    
    
    
    41,075Stockholders equity
    
    
    99,899
    
    
    
    90,054
    
    
    
    80,664
    
    
    
    74,135
    
    
    
    69,874
  (1)
    
    See Note 8 to our consolidated financial statements for discussion of
SFAS No. 142.  (2)
    
    Net income includes the net pre-tax benefit arising from the early
terminations of licensing agreements of
$1,600,000 in fiscal 2000. PRICE RANGE OF COMMON STOCKQuoted by quarter for the two fiscal years ended June 30, 2004 Fiscal 2004
    
    High
    
    LowSeptember
    
    $
    15.22
    
    
    $
    11.95December
    
    $
    16.05
    
    
    $
    14.10March
    
    $
    15.98
    
    
    $
    12.87June
    
    $
    13.87
    
    
    $
    13.02
 Fiscal 2003
    
    High
    
    LowSeptember
    
    $
    12.24
    
    
    $
    8.83December
    
    $
    9.99
    
    
    $
    8.15March
    
    $
    10.51
    
    
    $
    9.22June
    
    $
    12.50
    
    
    $
    9.99
 46




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##### 



(BACK COVER) DIRECTORS Dr. James F. Gaertner 1, 2, 3
Chairman of the Board
President
Sam Houston State University J.S.B. Jenkins
President and Chief Executive Officer
Tandy Brands Accessories, Inc.
C.A. Rundell, Jr. 1, 3
Private Investor
Gene Stallings 2, 3
Collegiate and Professional Football Coach,
Rancher, Author and Private Investor
Colombe M. Nicholas 2, 3
Private Investor
Roger R. Hemminghaus 1, 3
Chairman Emeritus
Ultramar Diamond Shamrock
George C. Lake
Founder and Managing Partner
Lake Real Estate and Investments
CORPORATE DATA
Corporate Of.ces
690 East Lamar Boulevard
Suite 200
Arlington, Texas 76011
817-548-0090
www.tandybrands.com
Annual Meeting
10:00 a.m., October 14, 2004
Wyndham Arlington Hotel
1500 Convention Center Drive
Arlington, Texas 76011
Common Stock Transfer Agent
and Registrar
EquiServe
www.equiserve.com
781-575-3120
Corporate Counsel
Winstead Sechrest & Minick P.C.
The Companys common stock is
traded on the NASDAQ National Market
System under the trading
symbol TBAC.
The Companys Form 10-K Report
for the year ended June 30, 2004,
as .led with the Securities and Exchange
Commission, is available
without charge upon request to
Mark J. Flaherty at the address of
the Corporate Of.ces.
OFFICERS
J.S.B. Jenkins
President and
Chief Executive Of.cer
Stanley T. Ninemire
Executive Vice President
Mark J. Flaherty
Chief Financial Of.cer
W. Mike Baggett
Secretary
Seated left to right, Dr. James F. Gaertner
and J.S.B. Jenkins
Standing left to right, George Lake,
Roger Hemminghaus, Gene Stallings,
Colombe Nicholas, C.A. Rundell, Jr.
1 Audit Committee 2 Human Resource and Compensation Committee 3 Nomination
Committee 47




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##### 



(BACK COVER) 690 East Lamar Boulevard
Suite 200
Arlington, Texas 76011
817-548-0090
www.tandybrands.com
TBAC-AR-04