-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SWHocQpNL/Z99wr6DQQyLc7pG2dmd/p9rgS5WpuCSGPZWA4vQsIZXyZS3sYEC469 vOlKwVwSyEwkp0K0lr7zVw== 0000950134-03-002223.txt : 20030212 0000950134-03-002223.hdr.sgml : 20030212 20030212150852 ACCESSION NUMBER: 0000950134-03-002223 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANDY BRANDS ACCESSORIES INC CENTRAL INDEX KEY: 0000869487 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 752349915 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18927 FILM NUMBER: 03554204 BUSINESS ADDRESS: STREET 1: 690 E LAMAR BLVD STE 200 CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8172654113 MAIL ADDRESS: STREET 1: 690 E LAMAR BLVD CITY: ARLINGTON STATE: TX ZIP: 76011 10-Q 1 d03059e10vq.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------- FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002 COMMISSION FILE NUMBER 0-18927 TANDY BRANDS ACCESSORIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2349915 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 690 EAST LAMAR BOULEVARD, SUITE 200, ARLINGTON, TX 76011 (Address of principal executive offices and zip code) (817) 548-0090 (Registrant's telephone number, including area code) Former name, former address and former fiscal year, if changed since last report: NOT APPLICABLE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes _______ No _______ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). X Yes _______ No _______ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Number of shares outstanding Class at February 11, 2003 COMMON STOCK, $1.00 PAR VALUE 5,926,198 ================================================================================ TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED DECEMBER 31, 2002 TABLE OF CONTENTS ================================================================================ PART I -- FINANCIAL INFORMATION
Item Page No. 1. Financial Statements 3 - 12 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 17 3. Quantitative and Qualitative Disclosures About Market Risk 18 4. Controls and Procedures 18 PART II -- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 19 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 CERTIFICATIONS 21-22 EXHIBIT INDEX 23-26
2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0-18927 FORM 10-Q ================================================================================ CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Six Months Ended Ended December 31 December 31 ---------------------- ----------------------- 2002 2001 2002 2001 -------- -------- --------- ------- Net sales $ 66,222 $ 60,607 $ 126,250 $ 114,713 Cost of goods sold 42,993 39,391 82,236 74,464 -------- -------- --------- ------- Gross margin 23,229 21,216 44,014 40,249 Selling, general and administrative expenses 15,512 13,803 30,638 27,113 Depreciation and amortization 1,078 1,335 2,158 2,722 -------- -------- --------- ------- Total operating expenses 16,590 15,138 32,796 29,835 -------- -------- --------- ------- Operating income 6,639 6,078 11,218 10,414 Interest expense (749) (857) (1,407) (1,635) Royalty and other income 45 3 46 12 -------- -------- --------- ------- Income before provision for income taxes and cumulative effect of accounting change 5,935 5,224 9,857 8,791 Provision for income taxes 2,308 2,033 3,835 3,418 -------- -------- --------- ------- Net income before cumulative effect of accounting change 3,627 3,191 6,022 5,373 Cumulative effect of accounting change for SFAS No. 142, net of income taxes of $369,000 - - (581) - -------- -------- --------- ------- Net income $ 3,627 $ 3,191 $ 5,441 $ 5,373 ======== ======== ========= ======= Earnings per common share Before cumulative effect of accounting change $ 0.61 $ 0.55 $ 1.02 $ 0.94 Cumulative effect of accounting change - - (0.10) - -------- -------- --------- ------- $ 0.61 $ 0.55 $ 0.92 $ 0.94 ======== ======== ========= ======= Earnings per common share - assuming dilution Before cumulative effect of accounting change $ 0.60 $ 0.55 $ 1.01 $ 0.93 Cumulative effect of accounting change - - (0.10) - -------- -------- --------- ------- $ 0.60 $ 0.55 $ 0.91 $ 0.93 ======== ======== ========= ======= Common shares outstanding 5,929 5,763 5,908 5,740 ======== ======== ========= ======= Common shares outstanding - assuming dilution 6,019 5,794 5,995 5,760 ======== ======== ========= ======= Cash dividends per common share None None None None
The accompanying notes are an integral part of these financial statements. 3 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0 -18927 FORM 10 - Q ================================================================================ CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
December 31, June 30, 2002 2002 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,428 $ 6,506 Accounts receivable, net 44,161 33,699 Inventories: Raw materials and work in process 5,251 4,957 Finished goods 50,984 47,861 Other current assets 5,058 4,806 --------- ----------- Total current assets 107,882 97,829 --------- ----------- Property and equipment, at cost 30,550 29,441 Accumulated depreciation (15,777) (14,373) --------- ----------- Net property and equipment 14,773 15,068 --------- ----------- Other assets: Goodwill 11,480 12,467 Intangible assets, less amortization 5,139 5,403 Other assets 2,397 2,670 --------- ----------- Total other assets 19,016 20,540 --------- ----------- $ 141,671 $ 133,437 ========= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,409 $ 12,755 Accrued expenses 8,830 6,857 --------- ----------- Total current liabilities 18,239 19,612 --------- ----------- Other liabilities: Notes payable 33,376 30,000 Other noncurrent liabilities 3,541 3,161 --------- ----------- Total other liabilities 36,917 33,161 --------- ----------- Stockholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none issued - - Common stock, $1 par value, 10,000,000 shares authorized, 5,926,198 shares and 5,899,173 shares issued and outstanding as of December 31, 2002 and June 30, 2002, respectively 5,926 5,899 Additional paid-in capital 23,020 22,690 Cumulative other comprehensive income (2,165) (1,706) Retained earnings 59,734 54,293 Treasury stock, at cost 0 (512) --------- ----------- Total stockholders' equity 86,515 80,664 --------- ----------- $ 141,671 $ 133,437 ========= ===========
The accompanying notes are an integral part of these financial statements. 4 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FILE NUMBER 0 -18927 FORM 10 - Q ================================================================================ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, ---------------------- 2002 2001 -------- -------- Cash flows from operating activities: Net income $ 5,441 $ 5,373 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 1,983 2,008 Amortization 264 767 Cumulative effect of accounting change, net 581 - Other (387) (322) Change in assets and liabilities: Accounts receivable (10,462) (5,053) Inventories (3,417) 3,544 Other assets 140 (684) Accounts payable (3,346) (2,668) Accrued expenses 1,988 3,320 -------- -------- Net cash provided by (used for) operating activities (7,215) 6,285 -------- -------- Cash flows from investing activities: Purchases of property and equipment (1,109) (553) -------- -------- Net cash used for investing activities (1,109) (553) -------- -------- Cash flows from financing activities: Exercise of employee stock options 95 - Sale of stock to stock purchase program 775 621 Proceeds from borrowings 43,125 43,908 Payments under borrowings (39,749) (49,186) -------- -------- Net cash provided by (used for) financing activities 4,246 (4,657) -------- -------- Net increase (decrease) in cash and cash equivalents (4,078) 1,075 Cash and cash equivalents at beginning of period 6,506 79 -------- -------- Cash and cash equivalents at end of period $ 2,428 $ 1,154 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,012 $ 1,428 Income taxes 2,548 1,811 Noncash activities: None.
The accompanying notes are an integral part of these financial statements. 5 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ACCOUNTING PRINCIPLES The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended December 31, 2002 are not necessarily indicative of the results that may be expected for the year ended June 30, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in our 2002 Annual Report. NOTE 2 - IMPACT OF NEW ACCOUNTING STANDARDS Effective July 1, 2002, we adopted Statement of Financial Accounting Standards, commonly referred to as SFAS, No. 142, "Goodwill and Other Intangible Assets." Please refer to Note 6 for information regarding goodwill and other intangible assets and the impact the adoption of this statement had on our condensed consolidated financial statements. In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for fiscal years beginning after June 15, 2002. This statement addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We adopted SFAS No. 143 during the first quarter of fiscal 2003. The adoption of this statement did not have a material effect on our consolidated financial position or statements of income, stockholders' equity and cash flows. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," effective for fiscal years beginning after December 15, 2001. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. We adopted SFAS No. 144 during the first quarter of fiscal 2003. The adoption of this statement did not have a material effect on our consolidated financial position or statements of income, stockholders' equity and cash flows. In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities, such as restructurings, terminating employees involuntarily and consolidating facilities. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. We do no not expect the adoption of this statement to have a material effect on our consolidated financial position or statements of income, stockholders' equity and cash flows. On December 31, 2002, the Financial Accounting Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While the Statement does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of Statement 123 or the intrinsic value method of APB Opinion No. 25. SFAS No. 148 is effective for the first interim period beginning after December 15, 2002. We do not expect the adoption of this statement to have a material effect on our consolidated financial position or statements of income, stockholders' equity and cash flows. 6 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - COMPREHENSIVE INCOME The following table illustrates the components of comprehensive income, net of related tax, for the three and six months ended December 31, 2002 and 2001 (in thousands).
THREE MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, ---------------------- --------------------- 2002 2001 2002 2001 ------ ------ ------ ------ Net income $ 3,627 $ 3,191 $ 5,441 $ 5,373 Foreign currency translation adjustments 34 (246) (235) (307) Fair Value of interest rate swap 74 89 (224) (926) ------ ------ ------ ------ Comprehensive income $ 3,735 $ 3,034 $ 4,982 $ 4,140 ====== ====== ====== ======
7 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts).
THREE MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, ----------------------- -------------------- 2002 2001 2002 2001 ------- ------ ------- ----- Numerator for basic and diluted earnings per share: Net income before cumulative effect of accounting change $ 3,627 $ 3,191 $ 6,022 $ 5,373 Cumulative effect of accounting change for SFAS No. 142, net of income taxes - - (581) - ======= ====== ======= ===== Net income $ 3,627 $ 3,191 $ 5,441 $ 5,373 ======= ====== ======= ===== Denominator: Weighted average shares outstanding 5,913 5,750 5,892 5,727 Contingently issuable shares 16 13 16 13 ------- ------ ------- ----- Denominator for basic earnings per share - weighted average shares 5,929 5,763 5,908 5,740 Effect of dilutive securities: Employee stock options 66 29 73 18 Director stock options 24 2 14 2 ------- ------ ------- ----- Dilutive potential common shares 90 31 87 20 Denominator for diluted earnings per share - adjusted weighted - average shares 6,019 5,794 5,995 5,760 ======= ====== ======= ===== Earnings per common share Before cumulative effect of accounting change $ 0.61 $ 0.55 $ 1.02 $ 0.94 Cumulative effect of accounting change - - (0.10) - ------- ------ ------- ----- $ 0.61 $ 0.55 $ 0.92 $ 0.94 ======= ====== ======= ===== Earnings per common share - assuming dilution Before cumulative effect of accounting change $ 0.60 $ 0.55 $ 1.00 $ 0.93 Cumulative effect of accounting change - - (0.10) - ------- ------ ------- ----- $ 0.60 $ 0.55 $ 0.91 $ 0.93 ======= ====== ======= =====
8 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - 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. To facilitate our internal operations as well as our customer relationships, we organize our products along men's and women's product lines. As a result, we have two reportable segments: men's accessories, consisting of belts, wallets, suspenders and other small leather goods and women's accessories, consisting of belts, wallets, handbags, socks, scarves, hats and hair accessories. We allocate general corporate expenses to each segment based on the respective segment's asset base. We allocate depreciation and amortization expense related to assets recorded on our corporate accounting records to each segment as described above. We measure profit or loss on each segment based on income or loss before taxes utilizing the accounting policies consistent in all material respects with those described in Note 1 of our 2002 Annual Report. No inter-segment revenue is recorded. The following table sets forth information regarding operations and assets by reportable segment (in thousands).
Three Months Ended Six Months Ended December 31, December 31, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Revenue from external customers: Men's accessories $ 30,605 $ 30,143 $ 60,848 $ 57,285 Women's accessories 35,617 30,464 65,402 57,428 -------- -------- -------- -------- $ 66,222 $ 60,607 $126,250 $114,713 ======== ======== ======== ======== Operating income(1): Men's accessories 3,131 3,329 5,606 5,595 Women's accessories 3,508 2,749 5,612 4,819 -------- -------- -------- -------- $ 6,639 $ 6,078 $ 11,218 $ 10,414 ======== ======== ======== ======== Interest expense (749) (857) (1,407) (1,635) Other income(2) 45 3 46 12 -------- -------- -------- -------- Income before income taxes and cumulative effect of accounting change $ 5,935 $ 5,224 $ 9,857 $ 8,791 ======== ======== ======== ======== Depreciation and amortization expense: Men's accessories $ 586 $ 822 $ 1,186 $ 1,667 Women's accessories 492 513 972 1,055 -------- -------- -------- -------- $ 1,078 $ 1,335 $ 2,158 $ 2,722 ======== ======== ======== ======== Capital expenditures: Men's accessories $ 47 $ -- $ 203 $ -- Women's accessories 33 310 145 451 Corporate 338 94 761 102 -------- -------- -------- -------- $ 418 $ 404 $ 1,109 $ 553 ======== ======== ======== ========
(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 tradenames and other income not specifically identifiable to a segment. 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS Effective July 1, 2002, we adopted 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. 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 it, 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 segment of products. The transitional impairment charge resulted from application of the new impairment methodology introduced by SFAS No. 142. Previous accounting rules incorporated a comparison of carrying value to undiscounted cash flows, whereas new rules require a comparison of carrying value to fair value, which is lower. Under previous requirements, no goodwill impairment would have been recorded on July 1, 2002. Pursuant to SFAS No. 142, goodwill and indefinite-lived intangible assets must be tested for impairment annually at the same time every year, and in between annual testing dates if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. In conjunction with the adoption of SFAS No. 142, we reassessed the useful lives and the classification of our finite-lived acquired intangible assets and determined that no revisions were necessary. The following table illustrates the gross carrying amount and accumulated amortization of our acquired intangible assets as of December 31, 2002 and June 30, 2002 (in thousands).
DECEMBER 31, JUNE 30, 2002 2002 ------------ -------- Amortized intangible assets (various, principally tradenames): Gross carrying amount $ 8,774 $ 8,774 ======== ======= Accumulated amortization $ (3,635) $ (3,371) ======== ======= Net amortized intangible assets $ 5,139 $ 5,403 ======== =======
10 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) Amortization expense for acquired finite-lived intangible assets during the six months ended December 31, 2002 was $264,000. The following table illustrates our estimated amortization expense for the remainder of fiscal 2003 through June 30, 2007.
Estimated amortization expense : Fiscal year ending 6/30/03 $ 242,000 Fiscal year ending 6/30/04 394,000 Fiscal year ending 6/30/05 361,000 Fiscal year ending 6/30/06 361,000 Fiscal year ending 6/30/07 361,000
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 (in thousands except per share amounts).
THREE MONTHS SIX MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, ------------------------- --------------------- 2002 2001 2002 2001 ------ ------ ------- ------ Reported net income before cumulative effect of accounting change $ 3,627 $ 3,191 $ 6,022 $ 5,373 Add back after-tax amounts: Goodwill amortization - 157 - 313 ------- ------- -------- ------- Adjusted net income before cumulative effect of accounting change $ 3,627 $ 3,348 $ 6,022 $ 5,686 ======= ======= ======== ======= Earnings per common share before accounting change: Reported net income $ 0.61 $ 0.55 $ 1.02 $ 0.94 Goodwill amortization - 0.03 - 0.05 ------- ------- -------- ------- Adjusted basic earnings per common share before accounting change $ 0.61 $ 0.58 $ 1.02 $ 0.99 ======= ======= ======== ======= Earnings per share - assuming dilution before accounting change: Reported net income $ 0.60 $ 0.55 $ 1.01 $ 0.93 Goodwill amortization - 0.03 - 0.05 ------- ------- -------- ------- Adjusted earnings per share - assuming dilution before accounting change $ 0.60 $ 0.58 $ 1.01 $ 0.98 ======= ======= ======== =======
11 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) The following table illustrates the changes in the carrying amount of goodwill by reportable segment for the six months ended December 31, 2002.
JUNE 30, IMPAIRMENT DECEMBER 31, 2002 LOSSES OTHER (1) 2002 -------- ---------- --------- ------------ Men's accessories $ 9,733 $ - $ (37) $ 9,696 Women's accessories 2,734 (950) - 1,784 -------- ----- ----- ------- Total $ 12,467 $ (950) $ (37) $ 11,480 ======== ===== ===== =======
(1) Difference due to foreign currency translation adjustments. NOTE 7 - SUBSEQUENT EVENT (EMPLOYEE BENEFIT PLAN) On January 1, 2003, the Company adopted the Tandy Brands Accessories, Inc. Supplemental Executive Retirement Plan (the "SERP") for certain of its corporate officers. The SERP provides that upon retirement, a participant will receive annual benefits (or a discounted lump-sum at the time of retirement in lieu of annual benefits) which, when added to Social Security retirement benefits, generally equal the participant's target percentage of 60% of the average of the highest annual salary and bonus for any three years. If the participant retires before the age of 65, the benefit is reduced by 5% for each year the participant age is less than 65. 12 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We are 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. We market our merchandise under a broad portfolio of nationally recognized licensed and proprietary brand names, including DOCKERS(R), LEVI'S(R), JONES NEW YORK(R), PERRY ELLIS(R), ROLFS(R), HAGGAR(R), WOOLRICH(R), JORDACHE(R), INDIAN MOTORCYCLE(R), BUGLE BOY(R), CANTERBURY(R), PRINCE GARDNER(R), PRINCESS GARDNER(R), AMITY(R), DON LOPER(R), ACCESSORY DESIGN GROUP(R), TEX TAN(R) and TIGER(R), as well as private brands for major retail customers. 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. RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2001 NET SALES AND GROSS MARGINS The following table illustrates sales and gross margin data from our reportable segments for the three and six months ended December 31, 2002 compared to the same period last year.
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------ ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net sales: Men's accessories $ 30,605 $ 30,143 $ 60,848 $ 57,285 Women's accessories 35,617 30,464 65,402 57,428 -------- -------- -------- -------- Total net sales $ 66,222 $ 60,607 $ 126,250 $ 114,713 ======== ======== ======== ======== Gross margin: Men's accessories $ 11,883 $ 11,555 $ 22,962 $ 21,703 Women's accessories 11,346 9,661 21,052 18,546 -------- -------- -------- -------- Total gross margin $ 23,229 $ 21,216 $ 44,014 $ 40,249 ======== ======== ======== ======== Gross margin as a percentage of sales: Men's accessories 38.8% 38.3% 37.7% 37.9% Women's accessories 31.9% 31.7% 32.2% 32.3% Total 35.1% 35.0% 34.9% 35.1%
13 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ For the three-month period ended December 31, 2002, net sales increased 9.3% to $66,222,000 compared to net sales of $60,607,000 for the same period last year. Net sales of men's accessories increased 1.5% for the three month period ended December 31, 2002 compared to the same period last year. We attribute the increase in net sales of men's accessories to increased mass merchant store orders and, despite a difficult retail environment, increased sales of men's small leather goods at the department store level. Net sales of women's accessories increased 16.9% for the three month period ended December 31, 2002 compared to the same period last year. We attribute the increase in net sales of women's accessories, to higher sales of our Rolfs(R) handbags, licensed small leather goods and belts such as LEVI'S(R) and DOCKERS(R) as well as increased sales of women's mass merchant accessories sales. For the six month period ended December 31, 2002, net sales increased 10.1%,to $126,250,000 compared to net sales of $114,713,000 for the same period last year. The sales increases were attributable to higher men's mass merchant accessories sales as well as women's accessories sales increases. Gross margins increased by $2,013,000 for the three month period ended December 31, 2002, or 9.5% compared to the same period last year. As a percentage of sales, gross margins increased 0.1% for the three month period ended December 31, 2002 compared to the same period last year. The overall increase was due to slightly higher margin sales of men's and women's small leather goods sales as compared to the same period last year which offset the gross margins from sales increases related to our mass merchant customers. For the six-month period ended December 31, 2002, the gross margin percentage decreased .2% compared to the same period last year. The overall decrease was due to a greater sales mix weighted towards mass merchant accessories during the first quarter of fiscal 2003 and direct sales shipments of women's accessories to Payless Shoes. OPERATING EXPENSES Selling, general and administrative expenses as a percentage of net sales for the three months ended December 31, 2002 increased 0.6% compared to the same period last year. The increase resulted from higher salary expenses as well as increased distribution labor due to the West Coast dock strike which totaled $383,000. For the six-month period ended December 31, 2002, selling, general and administrative expenses as a percentage of net sales increased .7% compared to the same period of the prior year. The increase resulted from higher salary expense due to nonrecurring costs associated with the implementation of distribution software in our Dallas, Texas distribution center totaling $290,000, higher compensation expense totaling $164,000 as well as severance costs totaling $430,000. Depreciation and amortization expenses as a percentage of net sales for the three and six months ended December 31, 2002 decreased 0.6% and 0.7%, for the same periods of the prior year, respectively. We attribute this decrease primarily to the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets," in which goodwill is no longer amortized (see note 6 to the condensed consolidated financial statements). Goodwill amortization expense for the same three and six month period in the prior year was approximately $255,000 and $510,000, respectively. Interest expense for the three and six month periods ended December 31, 2002 decreased $108,000 and $228,000, respectively, compared to the same period last year. This decrease primarily relates to lower interest rates as well as lower debt levels compared to the same period last year. The effective tax rate for the three and six months ended December 31, 2002 was 38.9%, which is consistent with the same period last year. Net income for the three month period ended December 31, 2002 increased 13.7% to $3,627,000, or $.60 per diluted share, compared to net income of $3,191,000, or $.55 per diluted share for the same period in the prior year. Net income, before the cumulative effect of accounting change resulting from the adoption of SFAS No. 142, for the six month period ended December 31, 2002 increased 12.1% to $6,022,000, or $1.01 per diluted share, compared to net income of $5,373,000, or $.93 per diluted share, for the same period last year. In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed annually for impairment. Separable intangible assets that do not have an indefinite life will continue to be amortized over their useful lives. 14 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ As discussed in our 2002 Annual Report, the required adoption of SFAS No. 142 is considered a change in accounting principle and 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. This amount does not affect our on-going operations. The adoption of the new accounting standard will result in an annual reduction in amortization expense of approximately $1 million. Net income, after the cumulative effect of accounting change resulting from the adoption of SFAS No. 142, for the six month period ended December 31, 2002 was $5,441,000, or $.91 per diluted share, compared to net income of $5,373,000, or $.93 per diluted share, for the same period last year. LIQUIDITY AND CAPITAL RESOURCES For the six months ended December 31, 2002, our operating activities used cash of $7,215,000, compared to providing cash of $6,285,000 for the same period last year. The cash provided from operations during fiscal 2002 was the result of an introduction of improved inventory control measures. The usage of cash during the six months ended December 31, 2002 was attributable to the timing of disbursements related to fall season inventory procurement which closely approximates the current seasonality of our business. Capital expenditures totaled $1,109,000 for the six months ended December 31, 2002, an increase of $556,000 from the same period last year. We attribute this increase to the implementation of a distribution software application during the first and second quarter of fiscal 2003. We anticipate that our capital expenditures for fiscal 2003 will approximate our capital investments of property and equipment for fiscal 2002. Capital commitments for fiscal 2003 include additional equipment for our distribution facility in Dallas, Texas, as well as additional hardware and software applications. We expect to fund our fiscal 2003 capital commitments through cash flows from operations and drawing on our existing credit facility. Generally, our primary sources of liquidity are cash flows from operations and our line of credit. We have an $80,000,000 committed secured revolving credit facility, which can be used for seasonal borrowings and letters of credit. This credit facility is secured by substantially all of our assets along with our subsidiaries' assets and requires us to maintain certain financial covenants which, if not maintained, could adversely impact our liquidity position. Our borrowings under our credit facility were $33,376,000 as of December 31, 2002 and $42,122,000 as of December 31, 2001. As of December 31, 2002, we had approximately $35,777,000 of credit available to us under our credit facility. We have never paid a cash dividend on our common stock. We currently intend to retain earnings for the foreseeable future to provide funds for the expansion of our business and the reduction of debt. Our existing credit facility restricts our ability to pay dividends. We believe we have adequate financial resources and access to sufficient credit lines to satisfy our future working capital needs. OFF BALANCE SHEET ARRANGEMENTS We do not have transactions, arrangements or relationships with "special purpose" entities, nor do we have any off balance sheet debt. 15 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ CRITICAL ACCOUNTING POLICIES 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 we believe 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 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 to customers and title to the goods has passed to the customer. We record sales returns and allowances at the time we can reasonably estimate the amounts. 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 decline below cost, an inventory markdown would be estimated and charged to expense in the period identified. We closely monitor fashion trend items and anticipate additional inventory markdowns if market indications in fashion trends justify further reserves. 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 it, 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. 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. 16 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ 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. We reevaluate our overall risk management philosophy as business conditions arise. SEASONALITY Our quarterly sales, net income and use of cash results are fairly consistent throughout the fiscal year, with a seasonal increase during the second quarter. INFLATION Although our operations are affected by general economic trends, we do not believe inflation has had a material effect on our results of operations. FORWARD-LOOKING STATEMENTS This Form 10-Q contains 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. In addition, other written or oral statements which constitute forward-looking statements may be made by or on our behalf. Words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," 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 forecasted 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. 17 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to interest rate risk on our long-term debt. We manage our exposure to changes in interest rates by the use of variable and fixed interest rate debt. In addition, we have 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. At December 31, 2002, our borrowings under our credit facility totaled $33,376,000, bearing a weighted-average interest rate of 4.44%. On July 1, 2001, we entered into a three year interest rate swap agreement with Wells Fargo Bank, N.A., which expires on June 27, 2004, converting $30,000,000 of outstanding indebtedness from a variable to a fixed interest rate. The average receive rate is based on a 90-day LIBOR rate. At December 31, 2002, the receive rates related to the interest rate swap were 1.81% and the pay rates related to interest rate swap were 5.60%. Interest differentials paid or received under the swap agreement are reflected as an adjustment to interest expense when paid. The interest rate swap agreement represents a valid cash flow hedge investment under SFAS No. 133. As such, during fiscal 2003 and 2002, changes in the fair value of the interest rate swap were recognized as other comprehensive income with the fair value at December 31, 2002, approximating ($2,065,000). 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 thereunder approximates carrying value. Theoretically, 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. ITEM 4. CONTROLS AND PROCEDURES Within the 90-day period prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our Exchange Act filings. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out our evaluation. 18 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held our 2002 Annual Meeting of Stockholders on October 16, 2002. The stockholders voted on the following matters at the meeting: 1. The re-election of J.S.B. Jenkins to our board of directors to serve as a Class III director for a three year term expiring at the 2005 annual meeting of stockholders, or until his successor is elected and qualified. The stockholders re-elected Mr. Jenkins to our board of directors. The following table indicates the number of votes cast for, the number of votes withheld and the number of broker non-votes with respect to the election of Mr. Jenkins.
FOR WITHHELD BROKER NON-VOTES - --- -------- ---------------- 4,778,580 692,611 -0-
The following directors' terms continued after the 2002 Annual Meeting: Ms. Colombe M. Nicholas Dr. James F. Gaertner Mr. Gene Stallings Mr. Roger R. Hemminghaus Mr. C.A. Rundell, Jr. 2. To adopt and approve the Tandy Brands Accessories, Inc. 2002 Omnibus Plan. The stockholders approved this proposal. The following table indicates the number of votes cast for, the number of votes cast against, the number of abstentions and the number of broker non-votes with respect to this matter.
FOR AGAINST ABSTAIN BROKER NON-VOTES - --- ------- ------- ---------------- 2,144,936 1,340,204 59,481 1,926,569
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. A list of exhibits filed as part of this report is set forth in the Exhibit Index, which immediately precedes such exhibits and is incorporated herein by reference. (b) Reports on Form 8-K. We filed a Form 8-K on October 17, 2002 to report the issuance of the press release announcing our financial results for the first quarter of fiscal 2003. We filed a Form 8-K on January 22, 2003 to report the issuance of the press release announcing our financial results for the second quarter of fiscal 2003. 19 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TANDY BRANDS ACCESSORIES, INC. (Registrant) /s/ J.S.B. Jenkins -------------------------------------- J.S.B. Jenkins President and Chief Executive Officer /s/ Mark J. Flaherty -------------------------------------- Mark J. Flaherty Chief Financial Officer Date: February 12, 2003 20 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ CERTIFICATION BY CHIEF EXECUTIVE OFFICER I, J.S.B. Jenkins, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ J.S.B. Jenkins -------------------------------------- J.S.B. Jenkins Chief Executive Officer 21 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ CERTIFICATION BY CHIEF FINANCIAL OFFICER I, Mark J. Flaherty, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tandy Brands Accessories, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ Mark J. Flaherty ---------------------------------------- Mark J. Flaherty Chief Financial Officer 22 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) ------------------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit ------------------------------ ---- ---- -------- ------- (3) Articles of Incorporation and By-laws 3.1 Certificate of Incorporation of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 3.1 3.2 By-laws of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 3.2 3.3 Amendment No. 1 to By-laws of Tandy Brands Accessories, Inc. 10-Q 5/10/02 0-18927 3.3 (4) Instruments defining the rights of security holders, including indentures 4.1 Certificate of Designations, Powers, Preferences, and Rights of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.1 4.2 Form of Common Stock Certificate of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.2 4.3 Form of Preferred Share Purchase Rights Certificate of Tandy Brands Accessories, Inc. S-1 11/02/90 33-37588 4.3 4.4 Form of Rights Certificate of Tandy Brands Accessories, Inc. 8-K 11/02/99 0-18927 4.5 4.5 Amended and Restated Rights Agreement dated October 19, 1999, between Tandy Brands Accessories, Inc. and Bank Boston, N.A. 8-K 11/02/99 0-18927 4.6 4.6 Amendment to Rights Agreement dated October 19, 1999, between Tandy Brands Accessories, Inc. and Fleet National Bank (f.k.a. Bank Boston, N.A.) 10-Q 05/10/02 0-18927 4.7 (10) Material Contracts 10.1 Tandy Brands Accessories, Inc. 1991 Stock Option Plan* S-1 11/02/90 33-37588 10.8 10.2 Form of Stock Option Agreement - 1991 Stock Option Plan* S-1 11/02/90 33-37588 10.9
23 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) -------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit ------------------------------ ---- ---- -------- ------- 10.3 Tandy Brands Accessories, Inc. Benefit Restoration Plan and related Trust Agreement and Amendments No. 1 and 2 thereto* 10-K 09/25/97 0-18927 10.14 10.4 Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and each of its Directors and Officers S-1 11/02/90 33-37588 10.15 10.5 Office Lease Agreement dated March 6, 1991, between John Hancock Mutual Life Insurance Co. and Tandy Brands Accessories, Inc. relating to the corporate offices S-1 11/02/90 33-37588 10.16 10.6 Tandy Brands Accessories, Inc. Non-Qualified Formula Stock Option Plan for Non- Employee Directors* S-8 02/10/94 33-75114 28.1 10.7 Tandy Brands Accessories, Inc. 1993 Employee Stock Option Plan and form of Stock Option Agreement thereunder* S-8 02/10/94 33-75114 28.2 10.8 Tandy Brands Accessories, Inc. Non-Qualified Stock Option Plan for Non-Employee Directors* S-8 02/10/94 33-75114 28.3 10.9 Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors* S-8 06/03/96 33-08579 99.1 10.10 Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan* S-8 12/12/97 33-42211 99.2
24 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) ------------------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit ------------------------------ ---- ---- -------- ------- 10.11 Tandy Brands Accessories, Inc. Employees Investment Plan as Amended and Restated Effective June 1, 2000* 10-K 09/26/00 0-18927 10.39 10.12 Credit Agreement Among Tandy Brands Accessories, Inc. as the Borrower, Wells Fargo HSBC Trade Bank, N.A. as Administrative Agent and as Lender, and certain Financial Institutions, as Lenders and Wells Fargo Bank, N.A. as Arranger as of June 27, 2001 10-K 09/25/01 0-18927 10.42 10.13 ISDA Master Agreement between Tandy Brands Accessories, Inc. and Wells Fargo Bank, N.A., dated as of June 27, 2001 10-K 09/25/01 0-18927 10.42 10.14 Tandy Brands Accessories, Inc. Stock Purchase Program* S-8 02/12/02 33-55436 99.5 10.15 Limited Consent and Waiver dated November 5, 2001 between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, N.A. as Administrative Agent under the Agreement 10-Q 11/13/01 0-18927 10.43 10.16 Amendment No. 2 to the Tandy Brands Accessories, Inc. 1997 Employee Stock Option Plan * 10-Q 5/10/02 0-18927 10.44 10.17 Amendment No. 4 to the Tandy Brands Accessories, Inc. Nonqualified Formula Stock Option Plan For Non-Employee Directors * 10-Q 5/10/02 0-18927 10.44 10.18 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Dr. James F. Gaertner* S-8 5/15/02 33-88276 10.2
25 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES ================================================================================ EXHIBIT INDEX
Incorporated by Reference (if applicable) ------------------------------------------------------------------- Exhibit Number and Description Form Date File No. Exhibit ------------------------------ ---- ---- -------- ------- 10.19 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Marvin J. Girouard* S-8 5/15/02 33-88276 10.3 10.20 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Gene Stallings* S-8 5/15/02 33-88276 10.4 10.21 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Roger R. Hemminghaus* S-8 5/15/02 33-88276 10.5 10.22 Nonqualified Stock Option Agreement for Non-Employee Directors, dated October 16, 2001, by and between Tandy Brands Accessories, Inc. and Colombe M. Nicholas* S-8 5/15/02 33-88276 10.6 10.23 First Amendment to Credit Agreement between Tandy Brands Accessories, Inc. and Wells Fargo HSBC Trade Bank, NA, dated June 28, 2002 10-K 9/27/02 0-18927 10.23 10.24 Tandy Brands Accessories, Inc. 2002 Omnibus Plan* 10-Q 11/12/02 0-18927 10.24 10.25 Tandy Brands Accessories, Inc. Supplemental Executive Retirement Plan* ** N/A N/A N/A N/A (99) Other Exhibits 99.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act (Chief Executive Officer)** N/A N/A N/A N/A 99.2 Certification pursuant to Section 906 of Sarbanes-Oxley Act (Chief Financial Officer)** N/A N/A N/A N/A
* Management contract or compensatory plan ** Filed herewith 26 EX-10.25 3 d03059exv10w25.txt SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT 10.25 TANDY BRANDS ACCESSORIES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PREAMBLE The Tandy Brands Accessories, Inc. Supplemental Executive Retirement Plan (hereinafter called the "Plan") is hereby established by Tandy Brands Accessories, Inc. a Delaware corporation (hereinafter called the "Company"), effective as of January 1, 2003. The purpose of the Plan is to provide retirement income to a select group of key management personnel and highly compensated employees who contribute materially to the continued growth, development and future business success of the Company. It is the intention of the Company that the Plan meet all of the requirements necessary to qualify it as a non-qualified, unfunded, unsecured plan of deferred compensation for a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all Plan provisions shall be interpreted accordingly. ARTICLE 1 DEFINITIONS 1.1 "Actuarial Equivalence" (or "Actuarially Equivalent") means equality of value of the aggregate amounts expected to be received under different forms of payment and/or at different times, based on an interest rate of seven percent and the unisex version of the 1994 GAR Mortality Table. 1.2 "Affiliated Company" means any trade or business entity, or a predecessor company of such entity, if any, which is a member of a controlled group of corporations of which the Company is also a member. 1.3 "Annual Compensation" means the Participant's gross salary and bonus earned in the Company's fiscal tax year, without reduction for any deductions. 1.4 "Annualized Social Security Benefit" means the annual Social Security benefit the Participant is eligible, as of the Participant's retirement or termination, to receive commencing at age 65. For purposes of determining this benefit, the Participant is assumed to earn no covered compensation between the date of his termination or retirement and age 65. Reasonable approximations may be used to determine this benefit. 1.5 "Annuity Equivalent of Benefit under the Qualified Plan" means the deferred single life annuity commencing at age 65 (or immediate annuity if age 65 or older at retirement) that is actuarially equivalent, as of the date of the Participant's retirement or termination, to the Participant's account balances attributable to Company-provided contributions under the Qualified Plan as of the date of retirement or termination. 1 1.6 "Benefit Compensation" means the average of the Participant's Annual Compensation for the three complete fiscal years in which such Annual Compensation was highest over the last ten fiscal years of the Participant's employment, but in no event shall such amount be less than the average of such Participant's Annual Compensation for the last 36 months of his employment. 1.7 "Board" means the board of directors of the Company. 1.8 "Change of Control" means any of the following: (a) any consolidation, merger or share exchange of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property, other than a consolidation, merger or share exchange of the Company in which the holders of the Company's common stock immediately prior to such transaction have the same proportionate ownership of common stock of the surviving corporation immediately after such transaction; (b) any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation) in one transaction or a series of related transactions, of all or substantially all of the assets of the Company; (c) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; (d) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of an aggregate of 20% of the voting power of the Company's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the 1934 Act) who beneficially owned less than 15% of the voting power of the Company's outstanding voting securities on the date of this Plan, or the acquisition of beneficial ownership of an additional 5% of the voting power of the Company's outstanding voting securities by any person or group who beneficially owned at least 15% of the voting power of the Company's outstanding voting securities on the date of this Plan, provided, however, that notwithstanding the foregoing, an acquisition shall not constitute a Change of Control hereunder if the acquiror is (x) a trustee or other fiduciary holding securities under an employee benefit plan of the Company and acting in such capacity, (y) an Affiliated Company or a corporation owned, directly or indirectly, by the stockholders of the Company is substantially the same proportions as their ownership of voting securities of the Company or (z) any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Board; or (e) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7. 1.9 "Committee" means the Human Resources Committee designated by the Board to administer the Plan in accordance with Section 6.5 of this Plan. The Human Resources Committee may delegate authority to an administrative committee to handle the day-to-day administrative functions of the Plan. 2 1.10 "Company" means Tandy Brands Accessories, Inc. and any successors thereto. 1.11 "Contingent Annuitant" means any person, trust or entity that the Participant designates to receive the Death Benefit as provided for in Section 3.6. 1.12 "Participant" means any employee of the Company who is designated and approved as set forth in Article 2. 1.13 "Plan" means this Tandy Brands Accessories, Inc. Supplemental Executive Retirement Plan, as amended from time to time. 1.14 "Qualified Plan" means the Tandy Brands Accessories, Inc. Employees Investment Plan, as amended from time to time. 1.15 "Supplemental Plan Benefit" means the annual benefit payable in accordance with the Plan. 1.16 "Years of Service" means each fiscal year of the Company in which the Participant completes at least 1,000 hours of service, and shall include all years of employment with the Company. Hours of service will be credited at the rate of 45 hours for each week of employment. Notwithstanding the foregoing, the Committee may, by written instrument, include within the Years of Service of a Participant such other service as the Committee may deem appropriate. ARTICLE 2 ELIGIBILITY TO PARTICIPATE The Committee shall, from time to time, designate those employees of the Company who shall be Participants in the Plan. The Participants that have been designated to participate in the Plan shall be listed on Schedule A attached hereto, which may be revised as necessary without the need for a formal Plan amendment. Once an employee becomes a Participant, he shall remain a Participant until his termination of employment with the Company and thereafter until all benefits to which he or his Contingent Annuitant is entitled under the Plan have been paid. ARTICLE 3 ELIGIBILITY FOR AN AMOUNT OF BENEFITS 3.1 Eligibility of Benefit. Each Participant is eligible to receive a benefit under the Plan as a result of one of the following events: 3 (a) "Normal Retirement" - termination of employment with the Company after attainment of age 65; (b) "Early Retirement" - termination of employment with the Company (i) after attainment of age 55 but before attainment of age 65, and (ii) after completion of 15 Years of Service; (c) "Disability Retirement" - termination of employment with the Company after incurring a long-term disability, as defined in any long-term disability plan maintained by the Company under which the Participant is covered, provided such Participant has completed at least 15 Years of Service as of the date of his termination; or (d) "Eligible Termination of Employment" - termination of employment with the Company for any reason other than Normal Retirement, Early Retirement or Disability Retirement, provided such Participant has completed at least 15 Years of Service as of the date of his termination. If a Participant has not completed at least 15 Years of Service at the time of his termination of employment for any reason, he shall not be eligible to receive any benefit under the Plan. 3.2 Normal Retirement Benefit. The Normal Retirement Benefit of a Participant who retires due to Normal Retirement shall be an annual Supplemental Plan Benefit equal to: (a) 2% of his Benefit Compensation multiplied by Years of Service up to 30 years; less (b) 100% of the sum of (i) his Annualized Social Security Benefit, and (ii) his Annuity Equivalent Benefit under the Qualified Plan. Payment of a Participant's Normal Retirement Benefit shall commence as of the first day of the month coincident with or next following the month of his Normal Retirement. 3.3 Early Retirement Benefit. The Early Retirement Benefit of a Participant who retires due to Early Retirement shall be an annual Supplemental Plan Benefit calculated as set forth in Section 3.2 above, reduced by 5% for each year of his age that is less than 65 as of the date of his Early Retirement. Payment of a Participant's Early Retirement Benefit shall commence as of the first day of any month coincident with or next following the month of his Early Retirement. 3.4 Disability Retirement Benefit. The Disability Retirement Benefit of a Participant who retires due to Disability Retirement shall be an annual Supplemental Plan Benefit calculated as set forth in Section 3.2 above, subject to the following: (a) Payment of a Disability Retirement Benefit may not begin before a Participant attains age 55; and 4 (b) If a Participant elects to begin receiving his Disability Retirement Benefit at or after age 55 and before age 65, such Benefit will be reduced by 5% for each year of his age that is less than 65 as of the date such payment commences. Payment of a Participant's Disability Retirement Benefit shall commence as of the first day of any month coincident with or next following the Participant's election to begin receiving such Benefit. If the Participant recovers from his long-term disability (as determined by the Company) prior to his commencement of receipt of a Supplemental Plan Benefit and he does not return to work for the Company, or if his period of long-term disability ceases by reason of his death prior to his commencement of receipt of a Supplemental Plan Benefit, his employment with the Company shall be deemed terminated as of the date of his recovery or death and in such event the Participant or his Contingent Annuitant, as the case may be, shall be entitled to such annual Supplemental Plan Benefit as he, she or it would be eligible to receive under the applicable provisions of this Article 3. 3.5 Termination Benefit. The Termination Benefit of a Participant who terminates with an Eligible Termination of Employment shall be an annual Supplemental Plan Benefit calculated as set forth in Section 3.2 above, subject to the following: (a) Payment of a Termination Benefit may not begin before a Participant attains age 55; and (b) If a Participant elects to begin receiving his Termination Benefit at or after age 55 and before age 65, such Benefit will be reduced by 5% for each year of his age that is less than 65 as of the date such payment commences. Payment of a Participant's Termination Benefit shall commence as of the first day of any month coincident with or next following the Participant's election to begin receiving such Benefit. 3.6 Pre-Retirement Death Benefit. If a Participant who has met the age and service requirements for Normal Retirement or Early Retirement dies (a) prior to termination of employment with the Company, or (b) after termination of employment with the Company but prior to commencement of his Supplemental Plan Benefit, his Contingent Annuitant shall be entitled to a death benefit calculated as a Supplemental Plan Benefit as set forth in Section 3.2 or 3.3, as applicable (the "Death Benefit"). Payment of a Death Benefit to a Contingent Annuitant shall commence as of the first day of the month coincident with or next following the Participant's death. 3.7 Ineligibility for Benefit. If a Participant's employment with the Company is terminated and neither the Participant nor his Contingent Annuitant qualifies for benefits under any of the preceding paragraphs of this Article 3, neither the Participant nor his Contingent Annuitant nor any other person or entity shall have a right to any benefit from the Plan with respect to such Participant. 5 ARTICLE 4 FORM AND COMMENCEMENT OF BENEFITS 4.1 Form of Benefits. (a) Supplemental Plan Benefits payable to a Participant pursuant to Section 3.2, 3.3, 3.4 or 3.5 shall be payable in a single life annuity payment form, if the Participant is not married at the time payment is to commence, or in a "100% joint and survivor annuity" payment form, if the Participant is married at the time payment is to commence. For purposes hereof, a "100% joint and survivor annuity" means reduced annuity payments of an equal amount over the joint lives of the Participant and the Participant's surviving spouse, where such payment form is Actuarially Equivalent to payment of the benefit in a single life annuity form. Notwithstanding the foregoing provisions of this Section 4.1(a), however, at the request of the Participant, the Company, in its discretion, may pay the Actuarially Equivalent value of the Supplemental Plan Benefit to the Participant in a single lump sum in lieu of any further benefit payment hereunder. (b) Death Benefits payable to a Contingent Annuitant pursuant to Section 3.6 shall be payable as follows: (i) If to a Contingent Annuitant that is a person, the Death Benefit shall be payable in a single life annuity payment form; provided, however, that at the request of the Contingent Annuitant, the Company, in its discretion, may pay the Actuarially Equivalent value of the Death Benefit to the Contingent Annuitant in a single lump sum in lieu of any further benefit payment hereunder. (ii) If to a Contingent Annuitant that is not a person, the Death Benefit shall be payable in a single lump sum of Actuarially Equivalent value of the Death Benefit. 4.2 Commencement of Benefits. A Supplemental Plan Benefit payable to a Participant pursuant to Section 3,2, 3.3, 3.4 or 3.5 will commence as set forth in the appropriate Section. A Supplemental Plan Benefit payable to a Contingent Annuity pursuant to Section 3.6 will commence as set forth in Section 3.6. Payment of a Supplemental Plan Benefit paid through an annuity to a Participant will terminate with the payment made on the first day of the month in which the Participant dies, unless the form of payment to the Participant provides for continuation of payments following his death, in which event payments will continue in accordance with such form and will terminate in accordance with the terms of the annuity. Payment of a Death Benefit paid through an annuity to a Contingent Annuitant will terminate in accordance with the terms of the annuity. 6 4.3 Small Benefits. If the Actuarially Equivalent value of any Supplemental Plan Benefit or Death Benefit is less than $25,000, the Company, in its discretion, may pay such value of such Benefit to the Participant or Contingent Annuitant in a single lump sum in lieu of any further benefit payment hereunder. 4.4 Change of Control. If the Company has a Change of Control, the Committee shall pay the Supplemental Plan Benefit for each Participant to such Participant in a lump sum, in an amount as determined under Section 3.2 as if each Participant had attained Normal Retirement with at least 30 Years of Service as of the date of the Change of Control. Payments made under this Section 4.4 shall be "grossed up" for federal, state or excise taxes (not including ordinary income tax, FICA tax or Medicare tax). ARTICLE 5 AMENDMENT AND TERMINATION 5.1 Amendment or Termination. The Company intends for the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. No amendment or termination of the Plan shall directly or indirectly deprive any Participant or Contingent Annuitant of all or any portion of any Supplemental Plan Benefit payment which has been commenced prior to the effective date of the amendment or termination. 5.2 Termination Benefit. In the case of a Plan termination, each actively employed or disabled Participant on the termination date shall have his Supplemental Plan Benefit calculated as set forth in Section 3.2 as if each such Participant had attained Normal Retirement with at least 30 Years of Service as of the Plan termination date. Payment of a Participant's Supplemental Plan Benefit under this Section shall not be dependent upon his continuation of employment with the Company following the Plan termination date, and such Benefit shall become payable at the date for commencement of payment of a Supplemental Plan Benefit pursuant to the terms of Section 4.2. 5.3 Corporate Successors. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidation of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event the Plan is not continued by the transferee, purchaser or successor entity, then Plan shall terminate subject to the provisions of Sections 5.1 and 5.2. 7 ARTICLE 6 MISCELLANEOUS 6.1 Forfeitures of Benefits. Notwithstanding any other provision of the Plan, future payment of a Supplemental Plan Benefit hereunder to a Participant will, at the discretion of the Board, be discontinued and forfeited, and the Company will have no further obligation hereunder to such Participant, if the Participant performs acts of gross malfeasance or gross negligence in a matter of material importance to the Company, and such acts are discovered by the Company at any time prior to the date of death of the Participant. The Board shall have sole and uncontrolled discretion with respect to the application of the provisions of this paragraph and such exercise of discretion shall be conclusive and binding upon the Participant and all other persons. 6.2 No Effect on Employment Rights. Nothing contained herein will confer upon any Participant the right to be retained in the Service of the Company nor limit the right of the Company to discharge or otherwise deal with Participants without regard to the existence of the Plan. 6.3 Funding. The Plan is a non-qualified, unfunded, supplemental executive retirement plan. Therefore, all benefits owing under the Plan shall be paid out of the Company's general corporate funds, which are subject to the claims of creditors, or out of any trust the Committee shall establish or authorize, provided that all assets paid into any such trust shall at all times before actual payment to a Participant or Contingent Annuitant remain subject to the claims of general creditors of the Company. In the absence of action by the Committee, nothing herein shall be construed to create or require the creation of a trust for the purpose of paying benefits owing under the Plan. No Participant, Contingent Annuitant or any other person or entity shall have any right, title or interest whatever in or to, or any claim, preferred or otherwise, in or to, any particular assets of the Company by reason of the right to receive a benefit under the Plan, or any trust that the Company may establish to aid in providing the payments described in the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or a fiduciary relationship of any kind between the Company and a Participant or any other person. Neither a Participant, a Contingent Annuitant of a Participant nor any other person or entity shall acquire any interest greater than that of an unsecured creditor in any assets of the Company, or in any trust that the Company may establish for the purposes of paying benefits hereunder, and any such Participant, Contingent Annuitant or other person or entity shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. Nothing contained in the Plan shall constitute a guaranty by the Company or any other entity or person that the assets of the Company will be sufficient to pay any benefit hereunder. 6.4 Spendthrift Provision. No benefit payable under the Plan shall be subject in an manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge prior to actual receipt thereof by the payee; and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge prior to such receipt shall be void; and the Company 8 shall not be liable in any manner for or subject to the debts, contracts, liabilities, engagements or torts of any person entitled to any benefit under the Plan. Notwithstanding the foregoing paragraph, in the event of divorce, a Participant may enter into an agreement providing for all or a portion of such Participant's benefit to be provided to his former spouse, provided such agreement substantially conforms to the requirements of a qualified domestic relations order under Internal Revenue Code Section 414(p). 6.5 Administration. The Plan shall be administered by the Human Resources Committee (the "Committee"). The Committee shall be responsible for the overall general operation and administration of the Plan and for carrying out the provisions thereof, except for matters which have been specifically reserved to the Board. The Committee, in its discretion, shall (a) interpret the Plan, (b) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and (c) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. The Committee shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan. The Committee may delegate authority to an administrative committee to handle the day-to-day administrative functions of the Plan. 6.6 Disclosure. Each Participant shall receive a copy of the Plan and the Committee will make available for inspection by any Participant or Contingent Annuitant a copy of the rules and regulations used by the Committee in administering the Plan. 6.7 State Law. The Plan is established under and will be construed according to the laws of the State of Texas, to the extent that such laws are not preempted by ERISA and valid Regulations published thereunder. 6.8 Incapacity of Recipient. In the event a Participant or Contingent Annuitant who is a person is declared incompetent and a conservator or other person legally charged with the care of his person or of his estate is appointed, any benefits under the Plan to which such Participant or Contingent Annuitant is entitled shall be paid to such conservator or other person legally charged with the case of his person or his estate. Except as provided in the preceding sentence, when the Committee, in its sole discretion, determines that a Participant or Contingent Annuitant is unable to manage his or her financial affairs, the Committee may direct the Company to make distributions to any person for the benefit of such Participant or Contingent Annuitant. 6.9 Unclaimed Benefit. Each Participant will keep the Committee informed of his current address and the current address of his spouse. The Committee shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Committee within one year after the date on which any payment of the Participant's Supplemental Plan Benefit may be made, then the Company shall have no further obligation to 9 pay any benefit hereunder to such Participant or any other person and such benefit shall be irrevocably forfeited. 6.10 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, neither the Company nor any individual acting as an employee or agent of the Company or as a member of the Committee shall be liable to any Participant, former Participant, Contingent Annuitant or any other person or entity for any claim, loss, liability or expense incurred in connection with the Plan. IN WITNESS WHEREOF, the Company has caused this instrument to be executed effective as of January 1, 2003, by its duly authorized officer pursuant to prior action taken by the Board. TANDY BRANDS ACCESSORIES, INC. By: /s/ J.S.B. Jenkins ------------------------------------ Name: J.S.B. Jenkins Title: President and Chief Executive Officer 10 SCHEDULE A TO THE TANDY BRANDS ACCESSORIES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As of January 1, 2003, the following employees are designated as Participants in the Plan: Name Effective date of participation - ---- ------------------------------- J.S.B. Jenkins January 1, 2003 Stanley T. Ninemire January 1, 2003 11 EX-99.1 4 d03059exv99w1.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, the undersigned President and Chief Executive Officer of Tandy Brands Accessories, Inc. (the "Company") hereby certifies: 1. that the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ J.S.B. Jenkins - ------------------------------------- J.S.B. Jenkins President and Chief Executive Officer February 12, 2003 EX-99.2 5 d03059exv99w2.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, the undersigned Chief Financial Officer of Tandy Brands Accessories, Inc. (the "Company") hereby certifies: 1. that the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark J. Flaherty - ----------------------- Mark J. Flaherty Chief Financial Officer February 12, 2003 -----END PRIVACY-ENHANCED MESSAGE-----