UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission File No. 1-7258
TANDYCRAFTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-1475224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 EVERMAN PARKWAY
FORT WORTH, TEXAS 76140
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 551-9600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------------- -----------------------
Common stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of September 8, 1995, there were 11,733,078 shares of Common Stock,
$1.00 par value, outstanding, and the aggregate market value of the Common Stock
of Registrant held by non-affiliates was approximately $76.4 million.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
--------------------- --------------------------
Part III Proxy Statement for 1995 Annual Meeting
TANDYCRAFTS, INC.
Form 10-K
PART I
------
Item 1. Business
- ------ --------
Tandycrafts, Inc. (the "Company"), a Delaware corporation, was incorporated
in June 1975 to operate the handicrafts segment previously operated by Tandy
Corporation. The Company consists of two primary industry segments: specialty
retail and specialty manufacturing. Industry Segment and Geographic Area
Information with respect to the Company's business is found in Note 10 of Notes
to Consolidated Financial Statements which is set forth in Item 8 herein.
Specialty Retail
- ----------------
The specialty retail segment consists of four retail concepts, each
specializing in the sale to the public of distinctive lines of products.
Included in this segment are Tandy Leather Company, Joshua's Christian Stores,
Sav-On Discount Office Supplies and Cargo Furniture and Accents. The specialty
retail segment has accounted for 45.9%, 50.1% and 58.9% of the total
consolidated net sales of the Company for fiscal years 1995, 1994 and 1993,
respectively. Substantially all of the Company's specialty retail products are
marketed through 325 Company-owned and operated specialty retail stores located
in 45 states of the United States as follows:
Stores at Stores at
July 1, 1994 Opened Closed June 30, 1995
------------ ------ ------ -------------
Tandy Leather Company 175 - - 175
Cargo Furniture and Accents 43 - 3 40
Joshua's Christian Stores 61 11 - 72
Sav-On Discount Office Supplies 21 18 1 38
--- -- -- ---
300 29 4 325
=== == == ===
Tandy Leather Company retails leathercraft materials, kits and equipment
used to produce functional and ornamental items and finished leathergoods. The
principal merchandise lines consist of various leathers, belts and buckles,
billfold kits and accessories, footwear and ladies' handbag kits, leatherworking
tools and decorative items made of leather. Approximately 3,000 items are sold
through 175 company-owned and operated specialty retail stores in the United
States, with the strongest concentration in the southwest and on the east and
west coasts. A portion of Tandy Leather Company's sales is to the institutional
market. This market is composed of industrial arts and crafts programs in
schools, hospitals, prisons and recreational organizations. Semi-professionals
and hobbyists make up an additional portion of Tandy Leather Company's market.
Tandy Leather Company has been successful in developing a loyal repeat customer
base. An important element in this achievement has been the effective use of
customer purchasing information in focusing Tandy Leather Company's advertising
and direct mail efforts. Tandy Leather Company also sponsors in-store classes,
workshops and offers demonstrations in leathercrafting techniques such as
carving, stamping, dyeing and jewelry making, which helps to cultivate new and
repeat customers. Store managers and employees also go out into the community
to give on-site demonstrations before school groups and other organizations. In
fiscal 1995, Tandy Leather Company's retail operations contributed approximately
19% of the consolidated net sales of the Company.
Cargo Furniture and Accents ("Cargo") sells a proprietary line of solid
wood furniture, bedding and complimentary accessories to residential,
institutional and commercial customers from 40 company-owned and operated
specialty retail stores primarily located in regional shopping malls in 12
states across the country. Cargo stores are located primarily in the Northeast,
Mid-Atlantic, Southeast and South-Central United States. The company obtains
the furniture it sells primarily from one source, but merchandise could be
obtained from other sources, if necessary. In fiscal 1995, Cargo contributed
approximately 8% of the consolidated net sales of the Company.
Joshua's Christian Stores is one of the largest national specialty retail
chains of inspirational books, music and gift items. Joshua's Christian Stores
operates a chain of 72 stores, located in Texas, Georgia, Tennessee, Alabama,
South Carolina, Colorado, New Mexico, Florida, Arizona and California. The
stores average approximately 3,000 square feet in size. Store locations are
predominantly in strip centers close to major shopping malls, which allows for
lower rent and occupancy costs, while at the same time benefiting from their
proximity to major shopping malls. Joshua's Christian Stores carries an
extensive selection of quality books, Bibles, music, gifts and cards which are
purchased from various suppliers. In fiscal 1995, Joshua's Christian stores
contributed approximately 12% of the consolidated net sales of the Company.
Sav-On Discount Office Supplies ("Sav-On") sells discount office supplies
from 38 company-owned and operated specialty retail stores which average
approximately 6,000 square feet. Sav-On's stores are located in Texas, Oklahoma
and Louisiana. Management's present strategy is to open future Sav-On stores
primarily in cities and towns with less than 70,000 people, with the intention
of avoiding direct competition with the major discount office supply chains.
Sav-On stores carry approximately 6,000 products, consisting primarily of office
and school supplies. The products sold are purchased from a variety of
suppliers. The primary customers for Sav-On are small business owners, students
and homeowners. In fiscal 1995, Sav-On contributed approximately 8% of the
consolidated net sales of the Company.
Specialty Manufacturing
- -----------------------
The specialty manufacturing segment is comprised of four divisions:
Picture Frames and Framed Art, Belts and Accessories, Outerwear and the Tandy
Wholesale International ("TWI") division. The specialty manufacturing segment
has accounted for 54.1%, 49.9% and 41.1% of total consolidated net sales of the
Company for fiscal years 1995, 1994 and 1993, respectively.
During fiscal 1995, the specialty manufacturing segment had net sales of
approximately $26.8 million to a group of customers under common control. The
Company had no other individual customer or group of customers which accounted
for more than 10% of the Company's total consolidated net sales.
The Picture Frames and Framed Art division, consisting of the Magee Company
and Impulse Designs manufactures and distributes a broad range of picture
frames, framed art, mirrors and bulletin boards. From facilities in Pocahontas
and Piggott, Arkansas, Magee produces over 29 million frames annually. Magee is
widely recognized for manufacturing low-cost frames out of oak, pine and poplar.
During fiscal 1995, Magee expanded its production capacity for metal frames and
developed a new line of extruded plastic frames. Impulse Designs, located in
Los Angeles, California, was a strategic acquisition made by the Company in
November 1993. Impulse is a manufacturer of framed art for the mass market.
Impulse has achieved a national following by introducing the works of well-known
artists at popular price points. Magee and Impulse's products are sold in the
United States and Canada by national account sales representatives, selling
primarily to mass-merchandise retail chains, drug and food retail chains,
department stores, general houseware merchants and specialty frame outlets.
While Magee's revenues are spread evenly throughout the year, Impulse's revenues
have been historically seasonal with almost one-third of their sales generated
during the Christmas season. The Picture Frames and Framed Art division
contributed 32% of the Company's total consolidated net sales in fiscal 1995.
The Belts and Accessories division is comprised of the Nocona Belt Company
located in Nocona, Texas and Prestige Leather Creations located in Los Angeles,
California. Nocona Belt Company manufactures a wide selection of western-style
belts and leather accessories such as wallets, money clips and hatbands. This
product line was expanded in 1994 to include a line of medium priced western
jewelry and leather care products. Acquired in 1992, Nocona Belt Company
markets its products nationally and internationally through independent
representatives who are responsible for maintaining Nocona Belt's existing
account base numbering more than 3,500 customers, as well as generating new
business. Nocona Belt Company attends national trade shows several times
annually, publishes catalogs, brochures and stickers, and distributes direct
mail packages on a monthly basis. Prestige Leather Creations, which was
acquired in November 1993, manufactures and markets a broad line of men's and
women's belts. Prestige Leather operates three principal divisions, each
representing distinct market segments of the belt industry. The cut-up division
manufactures and distributes ornamental fashion belts to garment manufacturers
who use these belts to accessorize their products. The retail division
manufactures and distributes women's fashion belts to the moderate and budget
segment of the retail business. Retail division customers include a variety of
mass-merchandise stores, department stores and specialty retail chains. The Al
Beres(R) division is a designer belt line that markets its collection to high-
end department stores and boutiques. For fiscal 1995, the Belts and Accessories
division contributed 6% to Tandycrafts' total consolidated net sales.
The Outerwear division is comprised of Birdlegs, located in St. Simon's
Island, Georgia, and Brand Name Apparel and David James Fashions, both located
in McAllen, Texas. Birdlegs, acquired in September 1993, is a producer of
screen-printed souvenir activewear including T-shirts, sweatshirts, cover-ups
and tank tops. Recognizing that creative design is critical to the success of
most screen printing companies, Birdlegs maintains a strong creative staff to
generate the hundreds of new designs required each year. Birdlegs markets its
products through its own in-house sales force as well as independent
representatives. Since being acquired, Birdlegs has provided new synergies
through its design and distribution of new products specifically designed for
Joshua's Christian Stores. Birdlegs is beginning to market and distribute these
and other new designs into the Christian retail market. Brand Name Apparel,
acquired in 1992, manufactures a line of leather jackets, vests, chaps and other
garments which are sold directly to Harley Davidson(R). David James Fashions,
also acquired in 1992, manufactures a high-end line of western jackets which are
marketed nationally through a direct sales force to over 4,500 customers. As
the licensed sales representatives to the Professional Cowboy's Rodeo
Association, David James Fashions is recognized as a leader in the Western
apparel industry. David James Fashions attends national trade shows and sells
its products to many of the same customers as Nocona Belt Company in the Belts
and Accessories division. The Outerwear division contributed 7% of the
Company's consolidated net sales for fiscal 1995.
The TWI division includes Tandy Wholesale International, J-Mar Associates,
TAG Express and Rivertown Button Company. Tandy Wholesale International, a
manufacturing arm for the Tandy Leather stores, produces many of the kits, tools
and supplies which are sold through those stores nationwide and wholesales
similar products to other leading craft stores throughout the United States and
Canada. As a significant purchaser of leather, TWI is able to command favorable
pricing and terms from its suppliers which enhance this division's overall
profitability. Also, as a significant supplier of materials including leather
and other manufactured products to the Belts and Accessories division, Tandy
Leather Retail and Joshua's Christian Stores, TWI also enhances their
competitiveness and profitability. J-Mar Associates, acquired in 1992, is a
producer and wholesale distributor of inspirational gift items both domestically
and internationally. J-Mar's customer base is primarily comprised of Christian
retail gift and book stores. Through its telemarketing sales force, J-Mar
distributes its product line to over 5,700 Christian book stores. TAG Express,
acquired in October 1993, distributes products featuring leading professional
and collegiate sports logos, including auto tags, bumper stickers, key tags,
decals, light switch covers, door knob hangers, luggage tags, automobile flags,
wind socks and pennants. TAG Express has licenses with the NFL, NBA, NHL, Major
League Baseball, U.S. Soccer League, the 1996 Olympics and all major colleges.
The automobile flags, wind socks and pennants sold by TAG are manufactured at
its facility in Lancaster, South Carolina. TAG Express sells its products
through a network of independent sales representatives, distributors and in-
house telemarketing personnel. Rivertown Button Company, acquired in May 1994,
is a contract manufacturer of promotional buttons. Buttons are manufactured for
a wide range of customers including corporate promotions and advertising
campaigns, political campaigns and public service groups. The company also
sells ribbons, posters and stickers. The TWI division contributed 10% of the
Company's consolidated net sales for fiscal 1995.
Raw Materials
- -------------
Raw materials used in the specialty manufacturing segment are available
from numerous sources and the Company believes that the availability of such
materials is adequate for its needs.
Intangible Assets
- -----------------
The Company owns a number of trademarks and copyrights. Management
considers these intangibles to be valuable assets and vigorously defends them
when necessary.
Seasonality
- -----------
The Company's operating results are subject to seasonal variation.
Historically, the Company has realized a larger proportion of its sales and
operating income in its second fiscal quarter (the Christmas season). Cash also
increases in December due to the Christmas business achieved by the Company's
specialty retail segment.
Competitive Conditions
- ----------------------
Tandy Leather Company competes with hobby and crafts stores, including
department and specialty stores, operated by individuals and various companies
in all trade areas. The picture frames and framed art sold by the Magee Company
and Impulse Designs are readily available from other suppliers who compete
actively for sales. The Cargo Furniture and Accents line of furniture, Joshua's
Christian Stores line of inspirational items and Sav-On Discount Office Supplies
line of discount office supplies, compete vigorously for sales with other
nationally-known brand names that are marketed by department stores, chain
stores and local specialty stores. The belts, accessories and apparel sold by
the Nocona Belt Company, Prestige Leather Creations, Birdlegs and David James
Fashions are readily available from other suppliers who compete actively for
sales. The licensed novelty and promotional products sold by TAG Express and
Rivertown Button are readily available from other suppliers who compete actively
for sales.
Environmental Affairs
- ---------------------
Compliance by the Company with federal, state and local environmental
protection laws have not had, and are not expected to have, a material effect
upon capital expenditures, earnings or the competitive position of the Company.
Foreign Operations and Export Sales
- -----------------------------------
A small amount of products produced by the Company is exported to
independent distributors and other customers in foreign nations. The combined
export operations contributed less than 10% of consolidated revenue and/or
income and utilized less than 10% of the consolidated assets of Tandycrafts,
Inc. for each of the last three fiscal years.
Employees
- ---------
The Company has approximately 4,200 employees, including part-time and
temporary employees. Tandycrafts, Inc. sponsors an employees' deferred salary
and investment (401-K) plan, which is coupled with the Tandycrafts, Inc.
Employee Stock Ownership Plan (the "ESOP") in which eligible employees and
officers may participate. As of June 30, 1995, approximately 92.1% of the
eligible employees were members of the ESOP, which invests primarily in common
stock of the Company. The Company is not a party to any union contract and
considers its relations with its employees to be very good.
Item 2. Properties
- -------------------
The Company owns buildings which it uses for offices, manufacturing and
warehousing. The Company also leases a significant amount of retail store
space. The total space owned and leased is as follows:
Approximate Square Footage
-----------------------------
Owned Leased Total
------- --------- --------
Warehouse and Office 349,235 353,859 703,094
Retail 4,750 824,023 828,773
Factory 367,235 430,026 797,261
------- --------- ---------
Totals 721,220 1,607,908 2,329,128
======= ========= =========
The warehouse, office and factory space is located approximately 38% in
Fort Worth, Texas (specialty retail and specialty manufacturing), 30% at three
site locations in Arkansas (specialty manufacturing), 15% at two locations in
California (specialty manufacturing), 8% at three other locations in Texas
(specialty manufacturing), with the remaining 9% located in Georgia, Minnesota
and South Carolina (specialty manufacturing). The leased retail stores are
generally small outlets and are located throughout 45 states of the United
States.
For additional lease information see Note 7 of Notes to Consolidated
Financial Statements, which is set forth in Item 8 herein.
Item 3. Legal Proceedings
- --------------------------
The Company is not involved in any legal proceeding required to be
disclosed pursuant to Item 103 of Regulation S-K, and no such proceeding was
terminated during the fourth quarter of the 1995 fiscal year.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of the 1995 fiscal year.
Executive Officers of the Registrant
- ------------------------------------
The following table sets forth certain information concerning the executive
officers of the Company.
Position and Business Experience Served as
Name and Age During Past Five Years Officer Since
- --------------- ------------------------------------- ---------------
Jerry L. Roy, 53 President and Chief Executive Officer 1988
since August, 1992. Senior Vice
President and Chief Operating Officer
prior thereto since 1988. Employed
by the Company in various positions
since 1959.
Michael J. Walsh, 54 Executive Vice President and Chief 1983
Financial Officer since August, 1992.
Vice President prior thereto since
1986. Secretary since 1983.
Corporate Counsel and Director of Tax
Administration since 1981.
Jim D. Allen, 35 Vice President and Director of SEC 1993
Reporting since November 1993.
Director of Special Projects since
May 1993. Prior to May 1993,
Mr. Allen was a Senior Manager in the
accounting firm of Price Waterhouse LLP.
None of the above officers are related by birth, adoption or marriage. All
officers are elected annually by the Board of Directors to serve for the ensuing
year.
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ---------------------------------------------------------------------------
Matters
- -------
Price Range of Common Stock
(Quoted by quarter for the two most recent fiscal years.)
High Low High Low
-------- -------- -------- --------
Sept. 1993 $ 18.38 $ 12.13 Sept. 1994 $ 13.13 $ 10.88
Dec. 1993 $ 19.50 $ 13.25 Dec. 1994 $ 13.00 $ 10.75
March 1994 $ 19.75 $ 11.38 March 1995 $ 11.50 $ 8.25
June 1994 $ 13.50 $ 10.38 June 1995 $ 9.50 $ 7.50
The principal market for the Company's common stock is the New York Stock
Exchange. As of September 8, 1995, there were approximately 9,240 shareholders
of record of the Company's common stock.
The Company's present policy is to retain earnings for the foreseeable
future for use in the Company's business and the financing of its growth. The
Company did not pay any cash dividends on its common stock during fiscal 1995
and 1994. The Company's revolving credit agreement contains provisions
specifying limitations on the amount of cash payments and distributions which
may be paid by the Company, including cash dividends and purchases of treasury
stock.
Item 6. Selected Financial Data
- --------------------------------
Selected Financial Data (Unaudited)
(in thousands, except per share amounts)
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Net sales $256,523 $214,869 $163,255 $133,135 $119,243
Operating income $ 11,860 $ 15,417 $ 12,749 $ 1,575 $ 4,109
Income before income taxes $ 8,027 $ 13,980 $ 12,299 $ 1,129 $ 3,560
Net income $ 5,217 $ 8,906 $ 7,750 $ 536 $ 2,150
Net income per common share $ .46 $ .79 $ .69 $ .05 $ .20
Weighted average shares
outstanding 11,434 11,336 11,232 10,263 10,760
Net income as percent of net
sales 2.0% 4.1% 4.7% .4% 1.8%
Net income as percent of
beginning equity 6.6% 13.3% 15.6% 1.1% 4.7%
Current assets $101,980 $ 85,414 $ 62,365 $ 46,201 $ 42,181
Current liabilities $ 27,113 $ 28,211 $ 17,427 $ 15,163 $ 13,008
Working capital $ 74,867 $ 57,203 $ 44,938 $ 31,038 $ 29,173
Current ratio 3.8 to 1 3.0 to 1 3.6 to 1 3.1 to 1 3.2 to 1
Total assets $178,803 $150,431 $ 89,865 $ 71,328 $ 68,121
Net property and equipment $ 28,707 $ 24,953 $ 20,427 $ 20,859 $ 22,990
Long-term liabilities $ 61,029 $ 43,138 $ 5,340 $ 6,668 $ 7,000
Retained earnings $ 80,084 $ 74,867 $ 65,961 $ 58,211 $ 57,675
Total stockholders' equity $ 90,661 $ 79,082 $ 67,098 $ 49,497 $ 48,113
Common shares outstanding 11,717 11,161 11,163 10,144 10,549
Stockholders' equity per
common share $ 7.75 $ 7.09 $ 6.01 $ 4.88 $ 4.56
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Tandycrafts, Inc. (the "Company") operates in two primary industry
segments, specialty retail and specialty manufacturing. The specialty retail
segment consists of four distinct retail concepts: Tandy Leather Company, which
sells leathercraft and related products through 175 stores located in 45 states;
Joshua's Christian Stores, which sells inspirational books, music and gifts
through a chain of 72 stores in ten states; Sav-On Discount Office Supplies,
which sells office supplies and related products through a chain of 38 stores
located primarily in smaller markets; and Cargo Furniture and Accents, which
sells a proprietary line of solid wood furniture and accessories through a chain
of 40 stores located in regional shopping malls. The specialty manufacturing
segment is comprised of four divisions: Picture frames and framed art, belts and
accessories, outerwear and the Tandy Wholesale International ("TWI") division.
RESULTS OF OPERATIONS
The following tables present selected financial data for each significant
company or division comprising the Company's two primary industry segments for
the years ended June 30, 1995 and 1994:
Fiscal Years Ended June 30, 1995 and 1994
(Dollars in Thousands)
1995 1994 Increase (Decrease)
--------------------- -------------------- --------------------
Operating Operating
Income Income Operating
Sales (loss) Sales (loss) Sales Income
--------- ---------- -------- --------- ------- ---------
Specialty retail:
- ----------------
Tandy Leather $ 47,757 $ 3,970 $ 49,273 $ 4,802 (3.1%) (17.3%)
Sav-On 20,647 (1,735) 14,635 (390) 41.1% (344.9%)
Joshua's 29,615 525 23,254 1,060 27.4% (50.5%)
Cargo 19,776 761 20,488 898 (3.5%) (15.3%)
-------- -------- -------- -------- ------- -------
117,795 3,521 107,650 6,370 9.4% (44.7%)
-------- -------- -------- -------- ------- -------
Specialty manufacturing;
- -----------------------
Picture Frames &
Framed Art 81,423 11,451 59,142 7,350 37.7% 55.8%
Belts & Accessories 14,720 (1,063) 14,436 1,364 2.0% (177.9%)
Outerwear 17,879 (526) 18,460 950 (3.1%) (155.4%)
TWI 24,706 3,127 15,181 3,598 62.7% (13.1%)
-------- -------- -------- -------- ------- -------
138,728 12,989 107,219 13,262 29.4% (2.1%)
-------- -------- -------- -------- ------- -------
Total operations,
excluding corporate $256,523 $ 16,510 $214,869 $ 19,632 19.4% (15.9%)
======== ======== ======== ======== ======= =======
Fiscal Years Ended June 30, 1994 and 1993
(Dollars in Thousands)
1994 1993 Increase (Decrease)
--------------------- -------------------- --------------------
Operating Operating
Income Income Operating
Sales (loss) Sales (loss) Sales Income
--------- ---------- -------- --------- ------- ---------
Specialty retail:
- ----------------
Tandy Leather $ 49,273 $ 4,802 $ 46,648 $ 3,884 5.6% 23.6%
Sav-On 14,635 (390) 11,363 (68) 8.8% (473.5%)
Joshua's 23,254 1,060 16,193 401 43.6% 164.3%
Cargo 20,488 898 21,914 (359) 6.5%) 350.1%
-------- -------- -------- -------- ------- ----------
107,650 6,370 96,118 3,858 12.0% 65.1%
-------- -------- -------- -------- ------- ----------
Specialty manufacturing:
- -----------------------
Picture Frames and
Framed Art 59,142 7,350 44,854 7,100 31.9% 3.5%
Belts and Accessories 14,436 1,364 6,480 1,070 122.8% 27.5%
Outerwear 18,460 950 7,249 (25) 154.7% 3900.0%
TWI 15,181 3,598 8,554 1,946 77.5% 84.9%
-------- ------- -------- -------- ------- ---------
107,219 13,262 67,137 10,091 59.7% 31.4%
-------- ------- -------- -------- ------- ---------
Total operations,
excluding corporate $214,869 $19,632 $163,255 $13,949 31.6% 40.7%
======== ======= ======== ======== ======= =========
FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
Net sales
For fiscal 1995, consolidated net sales increased $41,654,000, or 19.4%,
compared to fiscal 1994. Discussions relative to each of the Company's industry
segments are set forth below.
Specialty retail
Net sales for the specialty retail segment increased $10,145,000, or 9.4%,
compared to fiscal 1994. The specialty retail segment contributed 45.9% of
consolidated net sales in fiscal 1995 compared to 50.1% in the prior year.
Tandy Leather Company's net retail sales decreased $1,516,000, or 3.1%,
from fiscal 1994 with a decrease in same-store sales of 3.4%. The decrease in
sales reflects a reduction in the average number of transactions per store
compared to the previous year due primarily to a decline in sales of Southwest
fashion merchandise. The decrease in sales related to this merchandise category
is due in part to a decline in popularity, but also due to increased
competition.
Sav-On Discount Office Supplies achieved a $6,012,000, or 41.1%, increase
in net sales over fiscal 1994, primarily as a result of an aggressive store
expansion program. During fiscal 1995, Sav-On continued to increase its store
base by opening 18 new stores in targeted markets. Same-store sales were flat
primarily as a result of management's decision to forego in fiscal 1995 certain
low margin government and contract sales at the store level which occurred in
the months of July and December of fiscal 1994.
Joshua's Christian Stores achieved a $6,361,000, or 27.4%, increase in net
sales over fiscal 1994. The increase in total net sales is primarily due to the
effect of new store openings. Joshua's had 72 stores open at June 30, 1995
compared to 61 stores open at June 30, 1994. Same-store sales at Joshua's
increased 3.7% for the year and reflect the impact of increased competition in
certain markets.
Net sales for Cargo Furniture & Accents decreased $712,000, or 3.5%,
compared to fiscal 1994, primarily as a result of the closure of three stores
during fiscal 1995. Same-store sales increases for the year were 1.2%. The flat
same-store sales were attributable to the sluggish economy, particularly in the
fourth quarter, higher interest rates, and reduced new home starts during fiscal
1995.
Specialty manufacturing
Net sales for the specialty manufacturing segment increased $31,509,000, or
29.4%, compared to fiscal 1994. The specialty manufacturing segment contributed
54.1% of consolidated net sales in fiscal 1995 compared to 49.9% in the prior
year.
The increase in net sales for the Picture Frames and Framed Art division
was $22,281,000, or 37.7%, compared to fiscal 1994. The increase reflects the
contribution of Impulse Designs, which was acquired effective November 1, 1993,
as well as strong demand from the existing customer base and the addition of new
customers.
Net sales for the Belts and Accessories division increased $284,000, or
2.0%, compared to fiscal 1994. The slight sales increase reflects continuing
weak demand in the cut-up belt market and continued softness in the western
apparel market. Also, the sales increase reflects the acquisition of Prestige
Leather Creations effective as of November 1, 1993.
Net sales for the Outerwear division, decreased $581,000, or 3.1%, compared
to fiscal 1994. Sales for the year were adversely impacted by continued soft
demand experienced in the western apparel market and by the warm weather
conditions in the fall and early winter which affected the sale of jackets and
sweatshirts.
Net sales for the Tandy Wholesale International ("TWI") division, increased
$9,525,000, or 62.7%, compared to fiscal 1994. The increase in net sales
reflects the contributions of Rivertown Button, College Flags and Tag Express,
which were acquired effective April 1, 1994, June 1, 1994 and September 1, 1993,
respectively. Sales for the year also reflect strong sales gains from the
wholesale operations of the Tandy Leather Company and Tag Express primarily as a
result of the addition of new customers, penetration into new markets and the
introduction of new product lines.
Operating income
Total operating income before corporate expenses decreased $3,122,000, or
15.9%, to $16,510,000 for fiscal 1995 compared to fiscal 1994. A discussion of
operating income for each segment follows.
Specialty retail
Operating income for the specialty retail segment decreased $2,849,000, or
44.7%, from fiscal 1994. The specialty retail segment contributed 21.3% of
consolidated operating income before corporate expenses for fiscal 1995 compared
to 32.4% in the previous year.
Operating income for Tandy Leather decreased $832,000, or 17.3%, when
compared to the prior year. The decrease in operating income is primarily a
result of the decrease in sales, particularly sales of Southwest fashion
merchandise with its corresponding higher gross profit. For the year, gross
profit decreased $1,264,000 primarily as a result of decreased sales and a
change in the sales mix. Selling, general and administrative expenses decreased
approximately $447,000 for the year when compared to last year; however,
expenses as a percent of sales were up slightly due to the decrease in sales.
Sav-On experienced an operating loss of $1,735,000 for the year ended June
30, 1995 compared to an operating loss of $390,000 for the previous year. The
increase in operating loss is primarily a result of start-up and increased
administrative expenses incurred in expanding the store base from 21 stores at
June 30, 1994 to 38 stores at June 30, 1995. Gross profit as a percent of sales
for the year decreased compared to fiscal 1994 primarily as a result of
escalating paper costs which could not be passed on to customers because of
significant price competition. Also, administrative expenses have increased as a
percent of sales reflecting new store openings as well as investments made to
strengthen the management team and to build the necessary infrastructure to
support a larger store base.
Joshua's Christian Stores had operating income for the year ended June 30,
1995 of $525,000 compared to operating income for the same period last year of
$1,060,000. Gross margins for fiscal 1995 were consistent with fiscal 1994 while
selling, general and administrative expenses increased as a percent of sales.
The increase in selling, general and administrative expenses was due primarily
to increased advertising, increased labor expense resulting from store expansion
and additional support personnel, and increases in communication and data
processing expenses associated with the installation and implementation of a new
merchandising and management information system. These costs reflect an
investment made in building the necessary systems to support and manage a larger
store base.
Operating income for Cargo Furniture & Accents decreased $137,000 from
$898,000 in fiscal 1994 to $761,000 for fiscal 1995. The decrease in operating
income is attributable to a sluggish economy, primarily in the fourth quarter,
higher interest rates and fewer home starts, which caused flat same store sales.
For fiscal 1995, gross profit as a percent of sales remained consistent with the
prior year; however, selling, general and administrative expenses were reduced
as a result of cost savings stemming from closed stores as well as from internal
reorganization.
Specialty manufacturing
Operating income for the specialty manufacturing segment decreased
$273,000, or 2.1%, from fiscal 1994 to $12,989,000. The specialty manufacturing
segment contributed 78.7% of consolidated operating income before corporate
expenses for the year ended June 30, 1995 compared to 67.6% for the previous
year.
Operating income for the Picture Frames and Framed Art division increased
55.8% over fiscal 1994 to $11,451,000. The increase reflects the contribution of
Impulse Designs, which was acquired effective November 1, 1993. The increase in
operating income for fiscal 1995 also reflects increased sales and improved
gross margins resulting from manufacturing efficiency gains and a more
profitable sales mix.
The Belts and Accessories division posted an operating loss of $1,063,000
for fiscal 1995 compared to operating income of $1,364,000 for fiscal 1994. The
decrease in operating profitability compared to the previous year reflects the
continued softness in demand experienced in the cut-up and western apparel
markets, resulting in lower sales and gross margins. Gross margins were also
negatively impacted by increased raw material and labor costs.
The Outerwear division had an operating loss of $526,000 for the year ended
June 30, 1995 compared to operating income of $950,000 for the previous year.
The decrease in operating profitability compared to the prior year reflects the
softness in demand experienced in the western apparel market as well as the warm
weather conditions in the fall and early winter which adversely impacted sales
of sweatshirts and jackets. Gross margins were also negatively impacted by
increased raw materials costs and increased labor costs which could not be
passed on to customers.
The TWI division's operating income decreased $471,000, or 13.1% for fiscal
1995, compared to the previous year. The decrease in operating income reflected
the impact of the disruption of the professional baseball and hockey seasons on
the sales of related licensed products as well as production difficulties
encountered in bringing the recently acquired pennant manufacturing operation up
to capacity. These production difficulties have been addressed and are largely
resolved.
Selling, general and administrative expenses
Consolidated selling, general and administrative expenses were 32.6% as a
percent of sales for fiscal 1995 compared to 32.0% for fiscal 1994. In total
dollars, selling, general and administrative expenses increased $14,699,000, or
21.4%, for fiscal 1995 when compared to the previous year. The increase in
expenses was primarily due to acquisitions included for a full period this year
compared to a partial period last year and to new store openings.
Interest expense
Interest expense increased $2,319,000, or 146.7%, for fiscal 1995 when
compared to the prior year. The increase in interest expense was due to an
increase in average borrowings during the current year when compared to the
prior year and to increased interest rates.
Depreciation and amortization
Consolidated depreciation and amortization increased $1,457,000, or 36.3%,
for fiscal 1995 when compared to the previous year. The increase is due
primarily to depreciation related to property and equipment of businesses
acquired as well as amortization of goodwill related to acquisitions.
Depreciation expense has also increased over the prior year due to a higher
level of capital expenditures in the current year.
Provision for income taxes
The effective income tax rate for fiscal 1995 was 35.0% compared to 36.3%
for the prior year. The decrease in the effective tax rate reflects a decrease
in the 1995 federal statutory rate because of the decline in income before
taxes, the utilization of both federal and state hiring tax credit programs as
well as tax benefits generated from the creation of a Foreign Sales Corporation.
On July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. The adoption of SFAS
109 had no material impact on the Company's financial position or results of
operations.
FISCAL YEARS ENDED JUNE 30, 1994 AND 1993
Net sales
For fiscal 1994, consolidated net sales increased $51.6 million, or 31.6%,
compared to fiscal 1993. Discussions relative to each of the Company's industry
segments are set forth below.
Specialty retail
Net sales for the specialty retail segment increased $11.5 million, or
12.0%, compared to fiscal 1993. Tandy Leather Company's net sales increased $2.6
million, or 5.6%, over fiscal 1993 with an increase in same-store sales of 5%.
The increase in sales was primarily attributable to increased sales of fashion-
related merchandise including jewelry and accessory items, beads and leather
suede laces together with strong support from in-store workshops and classes
designed to promote sales of new merchandise offerings.
Sav-On Discount Office Supplies achieved a $3.3 million, or 28.8%, increase
in net sales over fiscal 1993, primarily as a result of an aggressive store
expansion program and a strong 14% increase in same-store sales. During fiscal
1994, Sav-On continued to increase its store base by opening nine new stores in
targeted markets. The increase in same-store sales reflects the growth in the
local customer bases as younger stores in the chain continue to mature as well
as the effective use of targeted print advertising coupled with seasonal sales
promotions.
Joshua's Christian Stores achieved a $7.1 million, or 43.6%, increase in
net sales over fiscal 1993. The increase in net sales was due primarily to an
aggressive store expansion program which resulted in a net increase of 21 stores
in fiscal 1994. Joshua's also achieved a 9% increase in same-store sales which
reflects the effective use of customer profile information used in connection
with its advertising campaigns and promotions.
Net sales for Cargo Furniture & Accents decreased $1.4 million, or 6.5%,
compared to fiscal 1993, primarily as a result of the closure of six stores
during fiscal 1994. The decrease in total net sales was partially offset by a
9% increase in same-store sales. The increase in same-store sales reflects the
positive impact of new and redesigned products, improved visual merchandising
and increased focus on accessory merchandise.
Specialty manufacturing
Net sales for the specialty manufacturing segment increased $40.1 million,
or 59.7%, compared to fiscal 1993. The increase in net sales for the Picture
frames and framed art division, which includes the Magee Company and Impulse
Designs, was $14.3 million, or 31.9%, compared to fiscal 1993 and reflects the
acquisition of Impulse Designs effective as of November 1, 1993.
Net sales for the Belts and Accessories division, which includes Nocona
Belt Company and Prestige Leather Creations, increased $8.0 million, or 122.8%,
compared to fiscal 1993 and reflects the acquisition of Prestige Leather
Creations effective as of November 1, 1993.
Net sales for the Outerwear division, which includes David James Fashions,
Brand Name Apparel and Birdlegs, increased $11.2 million, or 154.7%, compared to
fiscal 1993 and reflects the acquisition of Birdlegs effective as of October 1,
1993 as well as a full year of activity for David James Fashions and Brand Name
Apparel in fiscal 1994. David James Fashions and Brand Name Apparel were
purchased effective November 1, 1992 and, therefore, were included for only a
portion of fiscal 1993.
Net sales for the Tandy Wholesale International division ("TWI"), which
includes the wholesale arm of Tandy Leather Company, J-Mar, TAG Express,
Rivertown Button and College Flags, increased $6.6 million, or 77.5%, compared
to fiscal 1993. The increase in sales reflects the acquisition of TAG Express
effective as of September 1, 1993, the acquisition of Rivertown Button effective
as of April 1, 1994 and the acquisition of College Flags effective as of June 1,
1994.
The businesses acquired during fiscal 1994 contributed aggregate net sales
of $33.9 million to the specialty manufacturing segment.
Operating income
Total operating income before corporate expenses increased $5.7 million, or
40.7%, to $19.6 million in fiscal 1994. A discussion of operating income for
each segment follows.
Specialty retail
Operating income for the specialty retail segment increased $2.5 million,
or 65.1%, over fiscal 1993. Operating income for Tandy Leather increased
$918,000, or 23.6%, primarily as a result of the increase in same-store sales
without a proportionate increase in selling, general and administrative expenses
due to the fixed and semi-variable nature of such expenses. Gross margins for
Tandy Leather remained constant with the prior year.
The operating loss for Sav-On Discount Office Supplies increased from
$68,000 in fiscal 1993 to $390,000 in fiscal 1994 due primarily to start-up and
administrative costs incurred in expanding the store base from 12 stores at June
30, 1993 to 21 stores at June 30, 1994. These costs were partially offset by
increased sales and an increase in gross margin, primarily as a result of
increases in sales prices on selected items and reductions in certain product
costs due to greater volume discounts on purchases.
Operating income for Joshua's Christian Stores increased 164.3% over fiscal
1993 to $1.1 million. The increase was due primarily to an increase in sales
without a proportionate increase in selling, general and administrative expenses
due to the fixed and semi-variable nature of such expenses, offset by a slight
decrease in gross margin.
Operating income for Cargo Furniture & Accents increased $1,257,000 from a
$359,000 operating loss in fiscal 1993 to operating income of $898,000 for
fiscal 1994. The increase is attributable to a 9% same-store sales increase
coupled with a reduction in selling, general and administrative expenses,
primarily salaries and rent, partially as a result of closing six unprofitable
stores during fiscal 1994, and an increase in gross margin.
Specialty manufacturing
Operating income for the specialty manufacturing segment increased 31.4%
over fiscal 1993 to $13.3 million. Operating income for the Picture Frames and
Framed Art division increased 3.5% over fiscal 1993 to $7.4 million. The
increase in operating income reflects the acquisition of Impulse Designs
effective November 1, 1993, offset by a reduction in operating margin at the
Magee Company resulting primarily from the loss of certain customers that had to
be replaced during the year and increased raw material prices which Magee was
not able to pass on to customers due to aggressive price competition in the
industry.
Operating income for the Belts and Accessories division increased 27.5%
from fiscal 1993 to $1.4 million in fiscal 1994. The increase reflects the
acquisition of Prestige Leather Creations effective as of November 1, 1993.
Operating income for the Outerwear division increased from an operating
loss of $25,000 in fiscal 1993 to operating income of $950,000 in fiscal 1994.
The increase reflects the substantial growth in Brand Name Apparel during fiscal
1994 and the acquisition of Birdlegs effective as of October 1, 1993.
Operating income for the TWI division increased 84.9% over fiscal 1993 to
$3.6 million. The increase reflects increases in both sales and operating
margins for the Tandy Wholesale International division of Tandy Leather and for
J-Mar. The increase in operating income for the TWI division also reflects the
acquisition of TAG Express as of September 1, 1993 and Rivertown Button as of
April 1, 1994.
The businesses acquired during fiscal 1994 contributed aggregate operating
income of $2.4 million to the specialty manufacturing segment.
Selling, general and administrative expenses
Consolidated selling, general and administrative expenses as a percent of
sales decreased from 32.5% in fiscal 1993 to 32.0% in fiscal 1994. In total
dollars, expenses increased $15.8 million, or 29.9%, over fiscal 1993 primarily
due to acquisitions, new store openings and increases in corporate general and
administrative expenses.
Interest expense
Interest expense increased $913,000, or 136.7%, over fiscal 1993 due to an
increase in outstanding borrowings which were used to finance acquisitions
during fiscal 1994.
Provision for income taxes
The effective income tax rate for fiscal 1994 was 36.3% compared to 37.0%
for the prior year. The decrease in the effective income tax rate was primarily
due to a decrease in the effective state income tax rate. On July 1, 1993, the
Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes. The adoption of SFAS 109 had no material impact on
the Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have come from cash flows from
operations, sales of treasury stock to employee benefit programs, and borrowings
under the Company's revolving credit facility. Primarily, these funds have been
used to finance acquisitions, purchase property and equipment, retire the ESOP
loan and finance the growth in inventories and receivables.
During fiscal 1995, cash increased approximately $301,000. Cash used by
operating activities of approximately $4.0 million primarily resulted from an
increase in receivables and inventories related mainly to new store expansion
and sales increases requiring the expansion of working capital. Cash used for
investing activities of approximately $16.9 million resulted primarily from
capital expenditures for property and equipment of approximately $9.5 million,
the acquisition of the Novelty Division of Trench Manufacturing Company, Inc.,
which required cash payments of approximately $3.7 million and additional
consideration paid, as stipulated in the Asset Purchase Agreement, for the
acquisition of Impulse Designs, Inc. of $4.3 million. Cash of approximately
$21.2 million was provided by financing activities, primarily from borrowings
under the Company's revolving credit facility.
The Company has a $60 million revolving credit facility with a group of
banks. The credit facility is a two-year revolving line of credit, renewable
annually, and is convertible into a five-year term loan at the end of the
revolving period if not renewed. The Company also established a separate
unsecured $5 million borrowing facility from one of the banks, with interest
charged on borrowings based on the bank's prime rate. During July 1995, the
Company established an additional $10 million revolving credit facility that
terminates on March 31, 1996.
In connection with the November 1993 acquisition of Impulse Designs, the
Asset Purchase Agreement (the "Agreement") provides for a contingent payment to
be made based upon the attainment of certain earnings thresholds for the year
ended December 31, 1994. In April 1995, the Company made an additional payment
of $4.3 million pursuant to the terms of the Agreement. In June 1995, the former
owners of Impulse Designs filed an objection notice disputing the amount of the
additional payment. In the event of a dispute, the Agreement provides for
resolution through a process of binding arbitration. The additional amount
sought by the former owners of Impulse Designs is approximately $5.7 million.
The Company believes that no additional payment is required and has responded by
filing a counterclaim for a refund of an amount yet to be determined of the
April 1995 payment. This dispute is expected to proceed to arbitration during
fiscal 1996. The range of additional payment or refund, if any, cannot yet be
reasonably determined.
Cash of approximately $9.5 million was used for capital expenditures during
fiscal 1995. Planned capital expenditures for fiscal 1996 approximate $5.4
million and are primarily targeted for investments in the frames and framed art
division and expansion of Joshua's store base. Current store expansion plans
call for Joshua's to open 17 new stores in fiscal 1996. Funding for new store
expansion planned for fiscal 1996, exclusive of capital expenditures, will
approximate $2.5 million. The Company's minimum operating lease commitments for
fiscal 1996, including the new stores planned, are approximately $8.6 million.
Management believes that the Company's current cash position, its cash flows
from operations and available borrowing capacity will be sufficient to fund its
current operations, capital expenditures and current growth plans.
ACQUISITIONS
Effective November 1, 1994, the Company acquired the assets and assumed
certain liabilities of the Novelty Division of Trench Manufacturing Company,
Inc. ("Trench"). Trench's Novelty Division manufactures and markets pennants,
bumper stickers, foam hands and other novelty items. The acquisition was made
for approximately $3.7 million in cash and resulted in the recording of goodwill
of $3.1 million.
During fiscal 1995, the Company, through its wholly-owned subsidiary
Joshua's Christian Stores, purchased two Christian book stores for an aggregate
purchase price of approximately $600,000 in cash. The acquisitions resulted in
the recording of goodwill of approximately $284,000.
These acquisitions did not have a significant impact on sales or operating
income for the year ended June 30, 1995.
The Company may, from time to time, evaluate acquisition candidates which
complement its existing businesses. To the extent that debt is utilized to
finance any such acquisitions and goodwill related to such acquisitions is
recorded, results of operations in future periods will be impacted by increased
interest expense and the amortization of goodwill associated with such
acquisitions.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the consolidated results of
operations of the Company.
STRATEGY REVIEW
The Company plans to evaluate each of its various business segments during
the first half of fiscal 1996 to identify available actions to increase their
value to the Company and its shareholders. It is expected that the Company will
consider several options including changes in strategy or management,
restructuring of operations to achieve greater efficiency and divestiture
through a sale, spin-off or discontinuance of selected business units. Taking
one or more of these actions may result in the recognition of one-time gains or
charges during 1996. The timing and possible effect of any such actions will not
be known until completion of the strategic evaluation by the Company and its
advisors.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Index to Financial Statements
Financial Statements: Page
-------------------- ------
Report of Independent Accountants 16
Consolidated Balance Sheets, June 30, 1995
and 1994 17
Consolidated Statements of Income for the
Years Ended June 30, 1995, 1994 and 1993 18
Consolidated Statements of Cash Flowsfor the
Years Ended June 30, 1995, 1994 and 1993 19
Consolidated Statements of Stockholders'
Equity for the Years Ended June 30, 1995,
1994 and 1993 20
Notes to Consolidated Financial Statements 21
Financial Statement Schedules:
-----------------------------
For each of the three years in the period
ended June 30, 1995:
Schedule VIII - Valuation and Qualifying
Accounts and Reserves 32
Schedule IX - Short-Term Borrowings 33
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Tandycrafts, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Tandycrafts, Inc. and its subsidiaries at June 30, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
fiscal years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- -------------------------
PRICE WATERHOUSE LLP
Fort Worth, Texas
August 8, 1995
TANDYCRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
---------------------
1995 1994
--------- ---------
ASSETS
Current assets:
Cash, including short-term investments
of $259 and $75, respectively $ 1,807 $ 1,506
Trade accounts receivable, net of allowance
for doubtful accounts of $605 and
$441, respectively 31,440 26,021
Inventories 65,742 53,297
Other current assets 2,991 4,590
--------- ---------
Total current assets 101,980 85,414
--------- ---------
Property and equipment, net 28,707 24,953
Other assets 604 739
Goodwill, net 47,512 39,325
--------- ---------
$ 178,803 $ 150,431
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,000 $ 4,000
Accounts payable 12,558 11,333
Accrued liabilities and other 12,555 12,878
--------- ---------
Total current liabilities 27,113 28,211
--------- ---------
Long-term debt 59,000 41,600
Deferred taxes 2,029 1,538
Stockholders' equity:
Common stock, $1 par value, 50,000,000 shares
authorized, 18,527,988 issued 18,528 18,528
Additional paid-in capital 17,447 13,158
Retained earnings 80,084 74,867
Common stock in treasury, at cost, 6,811,300
and 7,367,357 shares, respectively (25,398) (27,471)
--------- ---------
Total stockholders' equity 90,661 79,082
--------- ---------
Commitments and contingencies (Note 7)
$ 178,803 $ 150,431
========= =========
The accompanying notes are an integral part of these financial statements.
TANDYCRAFTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Year Ended June 30,
----------------------------
1995 1994 1993
-------- -------- --------
Net sales $256,523 $214,869 $163,255
-------- -------- --------
Operating costs and expenses:
Cost of products sold (exclusive
of depreciation) 155,644 126,589 94,468
Selling, general and administrative 83,544 68,845 53,009
Depreciation and amortization 5,475 4,018 3,029
-------- -------- --------
Total operating costs and expenses 244,663 199,452 150,506
-------- -------- --------
Operating income 11,860 15,417 12,749
Interest income 67 144 218
Interest expense 3,900 1,581 668
-------- -------- --------
Income before income taxes 8,027 13,980 12,299
Provision for income taxes 2,810 5,074 4,549
-------- -------- --------
Net income $ 5,217 $ 8,906 $ 7,750
======= ======== ========
Net income per common share $.46 $.79 $.69
==== ==== ====
Weighted average number of common and
common equivalent shares 11,434 11,336 11,232
====== ====== ======
The accompanying notes are an integral part of these financial statements.
TANDYCRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended June 30,
----------------------------
1995 1994 1993
------- -------- --------
Cash flows from operating activities:
Net income $ 5,217 $ 8,906 $ 7,750
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 5,475 4,018 3,029
(Gain) loss on sale or abandonment
of assets (163) 56
Changes in assets and liabilities,
excluding effect of businesses acquired:
Receivables (5,036) (5,781) 1,098
Inventories (11,901) (7,143) (8,233)
Other current assets 1,734 (2,605) 1,146
Accounts payable, accrued expenses
and income taxes 644 592 (2,000)
------- -------- -------
Net cash provided (used) by
operating activities (4,030) (1,957) 2,790
------- -------- -------
Cash flows from investing activities:
Additions to property and equipment (9,519) (6,269) (2,891)
Purchase of business, net of cash acquired (9,052) (45,064) (414)
Proceeds from sale of fixed assets 1,685 43 175
Decrease in other receivables - - 1,250
Other investing activities - - (75)
------- -------- -------
Net cash used by investing activities (16,886) (51,290) (1,955)
-------- -------- -------
Cash flows from financing activities:
Sales of treasury stock to employee
benefit programs 5,817 2,254 1,806
Purchases of treasury stock (2,201) (970)
Principal payments on ESOP debt (4,000) (2,000) (1,000)
Borrowings under bank credit facility 19,400 41,600 -
Loan payments received from ESOP - 3,025 2,828
------- -------- --------
Net cash provided by financing
activities 21,217 42,678 2,664
------- -------- --------
Increase (decrease) in cash and cash
equivalents 301 (10,569) 3,499
Balance, beginning of year 1,506 12,075 8,576
------- -------- --------
Balance, end of year $ 1,807 $ 1,506 $ 12,075
======= ======== ========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 3,902 $ 1,490 $ 709
======= ======== ========
Income taxes $ 3,272 $ 5,114 $ 3,814
======= ======== ========
The accompanying notes are an integral part of these financial statements.
TANDYCRAFTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Additional Receivable
Common paid-in Retained Treasury from
stock capital earnings stock ESOP Total
------- --------- -------- -------- --------- -------
Balance, June 30, 1992 9,264 16,741 58,211 (28,866) (5,853) 49,497
Purchase of 69,628 shares
of treasury stock - - - (970) - (970)
Sale of 111,625 shares of
treasury stock to employee
benefit plan - 1,218 - 588 - 1,806
Acquisition of subsidiaries
for 494,530 shares of
treasury stock - 2,769 - 3,418 - 6,187
ESOP loan payments to
Company, 409,455 pledged
shares released - - - - 2,828 2,828
Two-for-one stock split
to shareholders of record
on February 5, 1993 9,264 (9,264) - - - -
Net income - - 7,750 - - 7,750
------- ------- ------- -------- ------- -------
Balance, June 30, 1993 18,528 11,464 65,961 (25,830) (3,025) 67,098
Purchase of 156,518
shares of treasury stock - - - (2,201) - (2,201)
Sale of 154,190 shares of
treasury stock to
employee benefit plan - 1,694 - 560 - 2,254
ESOP loan payments to
Company, 698,993
pledged shares
released - - - - 3,025 3,025
Net income - - 8,906 - - 8,906
------- ------- ------- -------- -------- -------
Balance, June 30, 1994 18,528 13,158 74,867 (27,471) - 79,082
Sale of 514,399 shares
of treasury stock to
employees benefit plan - 3,899 - 1,918 - 5,817
Contingent payment of
41,658 shares for
acquired business - 390 - 155 - 545
Net income - - 5,217 - - 5,217
------- ------- ------- -------- -------- -------
Balance, June 30, 1995 $18,528 $17,447 $80,084 $(25,398) $ - $90,661
======= ======= ======= ======== ======== =======
The accompanying notes are an integral part of these financial statements.
TANDYCRAFTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
Principles of consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries after
elimination of significant inter-company accounts and transactions.
Cash and cash equivalents - The Company considers, for purposes of the statement
of cash flows, all highly liquid investments purchased with an original maturity
of three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of average cost or market and
consist of the following (in thousands):
June 30,
-------------------
1995 1994
-------- --------
Finished goods $ 46,276 $ 35,189
Raw materials and work-in-process 19,466 18,108
-------- --------
$ 65,742 $ 53,297
======== ========
Property and equipment - Property and equipment is depreciated over the
estimated useful lives of the assets using principally the straight-line
method at the rates shown below:
Buildings 3% to 10%
Fixtures and equipment 5% to 50%
Leasehold improvements 5% to 20%
or the life of the lease.
Expenditures for maintenance, repairs, renewals and betterments which do
not materially prolong the useful lives of the assets are charged to income as
incurred. The cost of property retired or sold, and the related accumulated
depreciation, are removed from the accounts and any gain or loss, after taking
into consideration proceeds from sales, is reflected in income.
Pre-opening expenses - Expenses associated with the opening of new stores are
expensed as incurred.
Fair value of financial instruments - The fair value of the Company's long-term
debt approximates the carrying value due to the floating interest rates on such
debt. The carrying value of the Company's other financial instruments
approximates fair value due to the short-term maturities of the assets and
liabilities.
Goodwill - The cost of businesses acquired in purchase transactions has been
allocated among the identifiable assets and liabilities acquired based upon
their fair values at the dates of acquisition. Any cost in excess of the fair
value of such identifiable net assets acquired has been allocated to goodwill.
In general, goodwill is amortized using the straight-line method over the
estimated useful life of forty years. Accumulated amortization of goodwill at
June 30, 1995 and 1994 was $1,743,000 and $674,000, respectively. Goodwill which
arose prior to October 31, 1970, aggregating $2,147,000, is reviewed annually by
the Board of Directors and will continue to be carried as an asset unless the
Board determines that events and circumstances indicate that there has been a
decline or limitation in the value, at which time an appropriate amortization
policy will be adopted. Annually, the carrying value of goodwill related to
purchase transactions is evaluated to determine if events and circumstances
indicate a potential impairment of the recoverability of such goodwill. The
carrying value of goodwill will be reduced if it is probable that the
undiscounted cash flows from the related operations will be less than the
carrying amounts of the goodwill and other long-lived assets.
Income taxes - On July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes, on a
prospective basis. The adoption of SFAS 109 changed the Company's method of
accounting for income taxes from the deferred method (APB 11) to an asset and
liability approach. Previously the Company deferred the past tax effects of
timing differences between financial reporting and taxable income. Under SFAS
109, deferred tax assets and liabilities are recognized based on differences
between financial statement and tax bases of assets and liabilities using
presently enacted rates. The adoption of SFAS 109 had no material impact on the
Company's financial position or results of operations.
Net income per share - Net income per share of common stock is based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding during the periods, after giving effect to stock splits. The
computation of weighted average shares outstanding for fiscal 1995 and fiscal
1994 includes common stock equivalents of 5,000 and 171,000, respectively.
Advertising costs - Advertising costs are expensed the first time the
advertising takes place. Advertising expense for fiscal 1995, 1994 and 1993
was $8.1 million, $5.1 million and $3.7 million, respectively.
Stock split - In January, 1993, the Board of Directors of the Company authorized
a two-for-one common stock split payable in the form of a 100% stock dividend to
shareholders of record on February 5, 1993. Additional paid-in capital was
charged and common stock was credited for the par value of 9,263,994 shares
issued in connection with the stock split.
All applicable per-share data appearing in the consolidated financial
statements and notes thereto reflect the two-for-one stock split.
NOTE 2 - ACQUISITIONS
During the last three fiscal years, the Company completed a number of
strategic acquisitions to complement its operations. All acquisitions were
accounted for using the purchase method of accounting, except for the fiscal
1993 acquisition of J-Mar Associates, Inc. which was accounted for as a pooling
of interests. Goodwill resulting from these acquisitions is being amortized
over forty years.
Fiscal 1995
Effective November 1, 1994, the Company acquired the assets and assumed
certain liabilities of the Novelty Division of Trench Manufacturing Company,
Inc. ("Trench"). Trench's Novelty Division manufactures pennants, bumper
stickers, foam hands and other novelty items. The acquisition was made for
approximately $3.7 million in cash and resulted in the recording of goodwill of
$3.1 million.
During fiscal 1995, the Company, through its wholly-owned subsidiary
Joshua's Christian Stores, purchased two Christian book stores for an aggregate
purchase price of approximately $600,000 in cash. The acquisitions resulted in
the recording of goodwill of approximately $284,000.
These acquisitions are considered insignificant for presentation of pro
forma financial information.
Fiscal 1994
Effective September 1, 1993, the Company acquired the net assets of TAG
Express, a marketer of products featuring leading professional and collegiate
sports logos, for approximately $5.2 million in cash. The acquisition resulted
in the recording of goodwill of $4.0 million.
On September 30, 1993, the Company acquired the net assets of Birdlegs,
Inc. ("Birdlegs") for approximately $4.2 million in cash. Birdlegs produces and
markets screen-printed active wear. The acquisition resulted in the recording of
goodwill of $2.4 million.
Effective November 1, 1993, the Company purchased substantially all of the
assets and assumed certain liabilities of Prestige Leather Creations, Inc.
("Prestige") for $8.7 million in cash. Prestige manufactures and markets a broad
line of men's and women's belts ranging from the low-end to the high-end market
segments of the belt industry. During fiscal 1995, additional consideration of
$600,000 became due to the former owners based upon the occurrence of certain
events as specified in the purchase agreement. The acquisition resulted in the
recording of goodwill of $5.9 million.
Effective November 1, 1993, the Company purchased substantially all of the
assets and assumed certain liabilities of Impulse Designs, Inc. ("Impulse") for
$17.7 million in cash. Impulse is a leading producer of framed art to mass-
market retailers. The terms of the purchase agreement provide for a contingent
cash payment based upon the attainment of certain earnings thresholds for the
year ended December 31, 1994. In April 1995, the Company paid an additional $4.3
million in accordance with such provision of the purchase agreement. This
acquisition has resulted in the recording of goodwill of $18.9 million.
Effective April 1, 1994, the Company purchased the net assets of Rivertown
Button for approximately $6.0 million in cash. Rivertown Button is a contract
manufacturer of promotional buttons. The acquisition resulted in the recording
of goodwill of $4.3 million.
During fiscal 1994, the Company, through its wholly-owned subsidiary
Joshua's Christian Stores, purchased eight Christian book stores for an
aggregate purchase price of $1.9 million in cash. The acquisitions resulted in
the recording of goodwill of $1.4 million.
During fiscal 1994, the Company purchased three other businesses for cash
aggregating $1.9 million. These acquisitions resulted in the recording of
goodwill of $1.6 million.
Fiscal 1993
With respect to transactions involving common stock described below, the
shares issued have been restated to reflect stock splits which occurred
subsequent to date of consummation of the acquisitions.
Nocona Belt Company ("Nocona"), an established manufacturer of a high-
quality line of western leather belts and other accessories, was acquired
effective July 1, 1992. The Company purchased all of the outstanding stock of
Nocona in exchange for 866,668 shares of the Company's common stock, valued at
approximately $4.6 million at July 1, 1992. The acquisition resulted in the
recording of goodwill of $3.4 million.
In November 1992, all of the outstanding stock of David James
Manufacturing, Inc. ("David James") and Brand Name Apparel, Inc. ("Brand Name")
was acquired in exchange for 122,392 shares of the Company's common stock valued
at $1.6 million at the date of acquisition. David James and Brand Name
manufacture apparel which is sold under their own labels and private labels for
certain customers. Under the terms of the purchase agreements with David James
and Brand Name, additional shares of common stock of the Company may be issuable
to the previous owners based on pre-tax income of the acquired companies for
each of the five years following the date of acquisition. As of June 30, 1995,
41,658 additional shares have been paid pursuant to these agreements. These
acquisitions have resulted in the recording of goodwill of $1.2 million.
On October 15, 1992, the Company acquired all of the outstanding stock of
J-Mar Associates, Inc. ("J-Mar") in exchange for 295,841 shares of the Company's
common stock. J-Mar designs and wholesales inspirational gift items to gift and
stationery retailers in the United States and other countries. The acquisition
was accounted for as a pooling of interests.
NOTE 3 - PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
As of June 30 (in thousands) 1995 1994
------- -------
Property and equipment, at cost:
Land $ 2,441 $ 2,688
Buildings 12,568 12,911
Leasehold improvements 7,187 5,941
Fixtures and equipment 26,462 20,763
------- -------
48,658 42,303
Less accumulated depreciation (19,951) (17,350)
------- -------
Property and equipment, net $28,707 $24,953
======= =======
NOTE 4 - ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consisted of the following at June 30, 1995
and 1994 (in thousands):
1995 1994
------- -------
Accrued payroll and bonus $ 6,652 $ 6,837
Income taxes payable (receivable) (265) 389
Taxes, other than income taxes 1,135 817
Customer deposits 430 1,096
Interest 335 337
Other 4,268 3,402
------- -------
$12,555 $12,878
======= ========
NOTE 5 - DEBT
The Company has a $60 million revolving credit facility with a group of
banks. The credit facility is an unsecured, two-year revolving line of credit,
renewable annually, and is convertible into a five-year term loan at the end of
the revolving period if not renewed. Interest rates on borrowings are based on
current LIBOR or prime rates, at the option of the Company. A commitment fee of
1/4% is charged on the unused portion of the credit facility. Interest rates on
borrowings at June 30, 1995 ranged from 6.87% to 6.94%. At June 30, 1995, the
Company had borrowings aggregating $58 million and letters of credit aggregating
$445,000 outstanding under this facility. The loan agreement contains provisions
specifying certain limitations on the amount of future indebtedness, investments
and dividends, and requires the maintenance of certain financial ratios and
balances. At June 30, 1995, the Company was in compliance with such covenants.
In April 1995, the Company executed three $1 million promissory notes with
its primary banker. These promissory notes are unsecured and bear interest at
the prime rate, which was 9.00% at June 30, 1995. The balance of these
promissory notes is due on July 3, 1995. One of the promissory notes was
refinanced under the Company's long-term credit facility discussed above and is
therefore classified as long-term debt at June 30, 1995.
On July 6, 1995, the Company established an additional $10 million
revolving credit facility with its primary bankers. The credit facility is an
unsecured revolving line of credit that terminates on March 31, 1996. Interest
rates on borrowings are based on current LIBOR or prime rates, at the option of
the Company. A commitment fee of 1/4% is charged on the unused portion of the
credit facility. The loan agreement contains provisions specifying certain
limitations on the amount of future indebtedness, investments and dividends, and
requires the maintenance of certain financial ratios and balances.
In January 1988, the Company borrowed $14,738,000 which was concurrently
loaned to the newly formed Tandycrafts, Inc. Employee Stock Ownership Plan (the
"ESOP") on the same terms. With the proceeds, the ESOP purchased 850,160 shares
(pre-splits) of the Company's common stock. This note was retired on January 5,
1995 when the final installment of $4,000,000 was paid.
NOTE 6 - INCOME TAXES
The provision for income taxes was as follows (in thousands):
1995 1994 1993
-------- ------- --------
Current tax expense:
Federal $ 2,205 $ 4,440 $ 3,353
State and local 114 436 524
-------- ------- --------
Total current 2,319 4,876 3,877
Deferred tax expense:
Federal 491 198 672
-------- ------- --------
Total provision $ 2,810 $ 5,074 $ 4,549
======== ======= ========
Deferred tax liabilities (assets) are comprised of the following at June
30 (in thousands):
1995 1994
-------- -------
Depreciation $ 1,758 $ 1,648
Goodwill 834 305
-------- -------
Total deferred tax liabilities 2,592 1,953
-------- -------
Inventory (273) (164)
Bad debts (172) (148)
Loss carryforwards - (35)
Deferred compensation (65) -
Lease reserves (42) (75)
Other (11) (28)
-------- -------
Total deferred tax assets (563) (450)
Deferred tax assets valuation
allowance - 35
-------- -------
$ 2,029 $ 1,538
======== =======
The net change in the valuation allowance for deferred tax assets was a
decrease of $35,000. The decrease relates to the expiration of loss
carryforwards generated in prior years.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences (in thousands):
Year ended June 30,
---------------------------
1995 1994 1993
------- ------- -------
Statutory U.S. tax rates $ 2,729 $ 4,793 $ 4,181
Increase (decrease) in rates
resulting from:
State and local taxes, net 75 286 393
Other 6 (5) (25)
------- ------- -------
Effective tax rates $ 2,810 $ 5,074 $ 4,549
======= ======= =======
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases certain properties consisting primarily of retail stores
and transportation equipment under operating leases expiring through 2004. Real
estate taxes, maintenance and certain other costs are borne by the Company under
the provisions of most of the leases. The composition of total rental expense
for operating leases is as follows (in thousands):
Year ended June 30,
---------------------------
1995 1994 1993
------ ------- -------
Rentals:
Minimum $ 9,598 $ 7,760 $ 6,921
Contingent (percentage of sales) 31 54 34
------- ------- -------
$ 9,629 $ 7,814 $ 6,955
======= ======= =======
Minimum rental commitments for noncancellable operating leases (primarily
retail store space) at June 30, 1995 are summarized as follows (in thousands):
Year ended June 30,
1996 8,607
1997 7,152
1998 5,524
1999 4,239
2000 2,561
2001 and thereafter 3,520
-------
$31,603
=======
In connection with the November 1993 acquisition of Impulse Designs, the
Asset Purchase Agreement (the "Agreement") provides for a contingent payment to
be made based upon the attainment of certain earnings thresholds for the year
ended December 31, 1994. In April 1995, the Company made an additional payment
of approximately $4.3 million pursuant to the terms of the Agreement. In June
1995, the former owners of Impulse Designs filed an objection notice disputing
the amount of the additional payment. In the event of a dispute, the Agreement
provides for resolution through a process of binding arbitration. The additional
amount sought by the former owners of Impulse Designs is approximately $5.7
million. The Company believes that no additional payment is required and has
responded by filing a counterclaim for a refund of an amount yet to be
determined of the April 1995 payment. This dispute is expected to proceed to
arbitration during fiscal 1996. The range of additional payment or refund, if
any, cannot yet be reasonably determined.
NOTE 8 - EMPLOYEE STOCK OWNERSHIP PLAN
During fiscal 1988, the Company adopted the Tandycrafts, Inc. Employee
Stock Ownership Plan (the "ESOP" or the "Plan") which is open to all eligible
employees of the Company employed in the United States. Under the Plan,
participants contribute 5% of their earnings into the section 401(k) portion of
the Plan, which is immediately vested and used to purchase common stock of the
Company. The Company's matching contribution is 200% of the participant's
contribution. The Company's contribution is vested upon completion of five years
of credited service. The employee and Company contributions are paid to a
corporate trustee. Company contributions to the ESOP for the years ended June
30, 1995, 1994, and 1993 were approximately $3,933,000, $3,953,000 and
$3,474,000, respectively.
NOTE 9 - STOCK OPTION PLANS
The Tandycrafts, Inc. 1992 Stock Option Plan (the "Stock Option Plan")
provides for the grant of options to purchase up to 1,400,000 shares of the
Company's common stock by officers and key employees. Options granted under the
Stock Option Plan may not have an option price less than the fair market value
of common stock on the date of grant. Options are exercisable at a rate of 20%
per year beginning at least one year after the date of grant and, if not
exercised, expire ten years from the date of grant.
The Tandycrafts, Inc. 1992 Director Stock Option Plan (the "Director Plan")
provides for the grant of options to non-employee directors to purchase up to
240,000 shares of the Company's common stock. The Director options are
exercisable 33-1/3% at date of grant and 16-2/3% on the first, second, third and
fourth anniversaries of the date of grant and, if not exercised, expire ten
years from the date of grant.
A summary of stock option activity under these plans follows:
Option Amount
Shares Per Share
------------ -------------
Options outstanding,
June 30, 1993 1,127,500 $ 12.32
Options granted 349,900 $10.69-18.44
Options exercised (5,600) $ 12.32
Options terminated (52,900) $12.32-17.62
------------ -------------
Options outstanding,
June 30, 1994 1,418,900 $10.69-18.44
Options granted 77,000 $ 8.82-12.57
Options exercised
Options terminated (35,800) $11.13-18.44
------------ -------------
Options outstanding,
June 30, 1995 1,460,100 $ 8.82-12.57
============ ============
Options exercisable,
June 30, 1995 547,344 $10.69-18.44
============ ============
Options available for
future grant, June 30, 1995 174,300
============
NOTE 10 - INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in two primary industry segments, specialty retail and
specialty manufacturing. The specialty retail segment is comprised of four
distinct retail concepts. The specialty manufacturing segment is comprised of
four divisions: Picture Frames and Framed Art, Belts and Accessories, Outerwear
and TWI. Substantially all of the specialty retail products are marketed through
325 Company-owned specialty retail stores located in 45 states of the United
States. The specialty retail segment grants nominal credit primarily to
institutional customers. The specialty manufacturing segment, during fiscal
1995, 1994 and 1993, had net sales of $26,774,000, $24,259,000 and $22,424,000,
respectively, to a group of customers under common control. The Company had no
other individual customer or group of customers which accounted for more than
10% of the Company's total revenue. The specialty manufacturing segment, in the
normal course of business, grants credit with the majority of its sales.
Intersegment sales represent sales from the specialty manufacturing group
to the specialty retail group. Operating income is segment revenue less segment
operating expenses, which excludes corporate charges, goodwill amortization,
interest expense and income taxes. Identifiable assets by segment are those
assets that are used in each segment. Corporate assets are comprised of cash and
short-term investments.
Segment information for each of the three years in the period ended June
30, 1995 is as follows (in thousands):
Specialty Specialty
1995 manufacturing retailing Consolidated
----------- --------- -----------
Total sales $ 150,552 $ 117,966 $ 268,518
Intersegment sales (11,824) (171) (11,995)
--------- --------- ---------
Net sales $ 138,728 $ 117,795 $ 256,523
========= ========= =========
Operating income $ 12,989 $ 3,521 $ 16,510
========= =========
Corporate expenses including goodwill
amortization and interest expense, net (8,483)
---------
Income before income taxes 8,027
=========
Depreciation 2,225 2,180 4,405
Goodwill amortization 1,027 43 1,070
--------- --------- ---------
Total depreciation and amortization $ 3,252 $ 2,223 $ 5,475
========= ========= =========
Identifiable assets $ 121,753 $ 55,243 $ 176,996
========= =========
Corporate assets 1,807
---------
$ 178,803
=========
Capital expenditures $ 5,272 $ 4,247 $ 9,519
========= ========= =========
1994
Total sales $ 116,736 $ 107,650 $ 224,386
Intersegment sales (9,517) (9,517)
--------- --------- ---------
Net sales $ 107,219 $ 107,650 $ 214,869
========= ========= =========
Operating income $ 13,262 $ 6,370 $ 19,632
========= ========= =========
Corporate expenses including goodwill
amortization and interest expense, net (5,652)
---------
Income before income taxes $ 13,980
=========
Depreciation $ 1,705 $ 1,730 $ 3,435
Goodwill amortization 571 12 583
--------- --------- ---------
Total depreciation and amortization $ 2,276 $ 1,742 $ 4,018
========= ========= =========
Identifiable assets $ 103,538 $ 45,387 $ 148,925
========= =========
Corporate assets 1,506
---------
$ 150,431
=========
Capital expenditures $ 3,147 $ 3,122 $ 6,269
========= ========= =========
1993
Total sales $ 77,689 $ 96,118 $ 173,807
Intersegment sales (10,552) (10,552)
--------- --------- ---------
Net sales $ 67,137 $ 96,118 $ 163,255
========= ========= =========
Operating income $ 10,091 $ 3,858 $ 13,949
========= =========
Corporate expenses including goodwill
amortization and interest expense, net (1,650)
---------
Income before income taxes $ 12,299
=========
Depreciation $ 916 $ 2,022 $ 2,938
Goodwill amortization 91 91
--------- --------- ---------
Total depreciation and amortization $ 1,007 $ 2,022 $ 3,029
========= ========= =========
Identifiable assets $ 36,319 $ 41,471 $ 77,790
========= =========
Corporate assets 12,075
---------
$ 89,865
=========
Capital expenditures $ 1,327 $ 1,564 $ 2,891
========= ========= =========
NOTE 11 - QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly income statements (in thousands of dollars, except per
share amounts) for the years ended June 30, 1995 and 1994 are set forth below:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------- --------------- ----------------- ----------------
1995 1994 1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- -------- ------- -------
Net sales $65,512 $42,487 $75,619 $63,092 $54,891 $52,469 $60,501 $56,821
Costs and expenses:
Cost of goods
sold 39,802 24,893 44,572 37,686 33,160 31,222 38,110 32,788
Selling and
administrative 20,305 13,910 22,583 18,441 20,902 17,024 19,754 19,470
Depreciation and
amortization 1,349 798 1,207 1,022 1,465 1,046 1,454 1,152
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss) 4,056 2,886 7,257 5,943 (636) 3,177 1,183 3,411
Interest expense,
net 826 173 950 356 1,001 476 1,056 432
------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
before income
taxes 3,230 2,713 6,307 5,587 (1,637) 2,701 127 2,979
Provision (benefit)
for income taxes 1,176 1,004 2,210 2,185 (581) 1,021 5 864
------- ------- ------- ------ ------- ------ ------- -------
Net income (loss) $ 2,054 $ 1,709 $ 4,097 $3,402 $(1,056) $ 1,680 $ 122 $ 2,115
======= ======= ======= ====== ======= ======= ======= =======
Net income (loss)
per common share $.18 $.15 $.36 $.30 ($.09) $.15 $.01 $.19
==== ==== ==== ==== ==== ==== ==== ====
Item 9. Changes In and Disagreements With Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information required by this item with regard to executive officers is
included in Part I, Item 4 of this report under the heading "Executive Officers
of the Registrant", which information is incorporated herein by reference.
The information required by this item regarding the Directors of the
Company and compliance with Section 16(a) of the Securities Exchange Act of 1934
is set forth in the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders (the "Proxy Statement") under the heading "Election Of Directors",
which information is incorporated herein by reference. Such Proxy Statement
will be filed with the Commission pursuant to Regulation 14A within 120 days of
the fiscal year ended June 30, 1995.
Item 11. Executive Compensation
- --------------------------------
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation", which is incorporated
herein by reference. Such Proxy Statement will be filed with the Commission
pursuant to Regulation 14A within 120 days of the fiscal year ended June 30,
1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management", which information is
incorporated herein by reference. Such Proxy Statement will be filed with the
Commission pursuant to Regulation 14A within 120 days of the fiscal year ended
June 30, 1995.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information concerning relationships and related transactions is set
forth in the Proxy Statement under the heading "Executive Compensation -
Transactions With Management and Directors", which information is incorporated
herein by reference. Such Proxy Statement will be filed with the Commission
pursuant to Regulation 14A within 120 days of the fiscal year ended June 30,
1995.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following financial statements, schedules and exhibits are filed as
part of this report.
(1) Financial Statements and Financial Statement Schedules - See
Index to Financial Statements at Item 8 on page 15 of this
report.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated April 28, 1995,
which included the contents of a press release announcing the unaudited
results of operations for the three and nine-month periods ended March 31,
1995.
(c) Exhibits:
A list of the exhibits required by Item 601 of regulation S-K to be
filed as part of this report is set forth in the Index to Exhibits, which
immediately precedes such exhibits, and is incorporated herein by
reference.
(d) Not applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TANDYCRAFTS, INC.
(Registrant)
September 27, 1995 By /s/ Jerry L. Roy
----------------------
Jerry L. Roy
President and Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 27th day of September, 1995, by the
following persons on behalf of the Registrant and in the capacities indicated.
/s/ B. Frank Bigger
-------------------------------
B. Frank Bigger
Director
/s/ R.E. Cox III
-------------------------------
R. E.. Cox III
Chairman of the Board
/s/ Jim D. Allen
-------------------------------
Jim D. Allen
Vice President and Director
of SEC Reporting
(Chief Accounting Officer)
/s/ Joe K. Pace
-------------------------------
Joe K. Pace
Director
/s/ Jerry L. Roy
-------------------------------
Jerry L. Roy
President and Chief Executive Officer
and Director
/s/ Robert Schutts
-------------------------------
Robert Schutts
Director
/s/ Carol Smith
-------------------------------
Carol Smith
Director
/s/ Michael J. Walsh
-------------------------------
Michael J. Walsh
Executive Vice President, Secretary,
Chief Financial Officer and Director
Schedule VIII
TANDYCRAFTS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In thousands)
Year ended June 30,
----------------------------------
1995 1994 1993
-------- -------- --------
Allowance for doubtful accounts:
Balance, beginning of year $ 441 $ 264 $ 129
Additions charged to profit and loss 788 343 153
Accounts receivable charged off, net
of recoveries (624) (166) (18)
-------- --------- ---------
Balance, end of year $ 605 $ 441 $ 264
======== ========= =========
Schedule IX
TANDYCRAFTS, INC. AND SUBSIDIARIES
Short-Term Borrowings
(Dollars in thousands)
End of Period During the Period
-------------------------- -------------------------------------------------------
Category of aggregate Weighted Maximum Average Weighted
short-term borrowings average amount amount average
(a) Balance interest rate outstanding (b) outstanding (c) interest rate (d)
- ------------------- -------- ------------- ----------------- -------------- -----------------
Year ended 6-30-95
- ------------------
Banks $ 61,000 7.03% $ 62,310 $ 54,903 6.77%
Year ended 6-30-94
- ------------------
Banks $ 41,600 5.19% $ 41,600 $ 24,141 4.60%
Year ended 6-30-93 - - - - -
- ------------------
(a) Bank borrowings represent short-term loans which are generally payable in
30, 60 or 90 day maturities with interest at the lending banks' prime
commercial rate (9.0% and 7.25% at June 30, 1995 and June 30, 1994,
respectively) or at LIBOR plus .75% (weighted average of 7.03% at June 30,
1995 and June 30, 1994, respectively).
(b) The maximum amount outstanding is based on the highest month-end balance
during the period.
(c) The average amount of short-term borrowings is determined by using the
average daily balances during the period.
(d) The weighted average interest rate of short-term borrowings was computed by
dividing the total interest expense for the period by the average short-
term borrowings.
TANDYCRAFTS, INC.
INDEX TO EXHIBITS
Filed with the Annual Report on Form 10-K for the year ended June 30, 1995.
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation (1)
3.2 # Amended and Restated Bylaws of the Company
3.3 Certificate of Amendment of Certificate of Incorporation
dated December 7, 1992 (3)
10.1 * # Executive Officers Incentive Bonus Plan
10.2 * The Tandycrafts, Inc. 1992 Stock Option Plan (2)
10.3 * The Tandycrafts, Inc. 1992 Director Stock Option Plan (2)
10.4 * Form of Stock Option Agreement used to evidence stock options
granted under the Tandycrafts, Inc. 1992 Stock Option Plan (3)
10.5 * Form of Stock Option Agreement used to evidence stock options
granted under the Tandycrafts, Inc. 1992 Director Stock Option
Plan (3)
10.6 * # Amended and Restated Tandycrafts, Inc. ESOP Benefit Restoration
Plan
10.7 Revolving Credit and Term Loan Agreement (4)
10.8 * Amendment to the Tandycrafts, Inc. 1992 Stock Option Plan (5)
10.9 * Amended Tandycrafts, Inc. 1992 Director Stock Option Plan (6)
10.10 Second Amendment to Revolving Credit and Term Loan Agreement (7)
10.11 # Third Amendment to Revolving Credit and Term Loan Agreement
10.12 # Fourth Amendment to Revolving Credit and Term Loan Agreement
21 # Subsidiaries of the Registrant
23 # Consent of Independent Accountants
27 # Financial Data Schedule (filed electronically only)
# Filed herewith.
* Indicates management compensatory plan, contract or arrangement.
(1)Filed with the Commission as an Exhibit to the Company's Form S-1
Registration Statement (No. 2-54086) and incorporated herein by reference.
(2)Filed with the Commission as an Exhibit to the Company's Definitive Proxy
Statement dated October 5, 1993, which Proxy Statement was filed with the
Commission as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended June 30, 1993. Such Exhibit is incorporated herein by reference.
(3)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993, and incorporated herein
by reference.
(4)Filed with the Commission as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993, and incorporated herein
by reference.
(5)Filed with the Commission as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994, and incorporated herein
by reference.
(6)Filed with the Commission as an Exhibit to the Company's Definitive Proxy
Statement dated October 3, 1994, which Proxy Statement was filed with the
Commission as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994.
(7)Filed with the Commission as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, and incorporated herein
by reference.