-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QPTXuvmuFP/rlcJheTjyBii7XS98aSXabrHXH8Pet611xxPO2UCzJ/S8HJB1cshe OfX510HuzUIU+4/n7iKMFA== 0000096294-95-000004.txt : 19950515 0000096294-95-000004.hdr.sgml : 19950515 ACCESSION NUMBER: 0000096294-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950210 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANDYCRAFTS INC CENTRAL INDEX KEY: 0000096294 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [5945] IRS NUMBER: 751475224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07258 FILM NUMBER: 95508818 BUSINESS ADDRESS: STREET 1: 1400 EVERMAN PKWY CITY: FORT WORTH STATE: TX ZIP: 76140 BUSINESS PHONE: 8175519600 MAIL ADDRESS: STREET 1: 1400 EVERMAN PKWY CITY: FORT WORTH STATE: TX ZIP: 76140 10-Q 1 SECOND QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended December 31, 1994 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ______________ to ________________ Commission File Number 1-7258 TANDYCRAFTS, INC. (Exact name of registrant as specified in its charter) Delaware 75-1475224 (State of incorporation) (I.R.S. Employer Identification Number) 1400 Everman Parkway, Fort Worth, Texas 76140 (Address of principal executive offices) (Zip Code) (817) 551-9600 (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Shares outstanding as of December 31, 1994 Common Stock, $1,00 par value 11,451,265 TANDYCRAFTS, INC. Form 10-Q Quarter Ended December 31, 1994 TABLE OF CONTENTS PART 1 - FINANCIAL INFORMATION Item Page No. 1. Condensed Consolidated Financial Statements 3-8 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14 PART II - OTHER INFORMATION 4. Submission of Matters to a Vote of Security Holders 15 6. Exhibits and Reports on Form 8-K 15 Signatures 16 PART I Item 1. Financial Statements TANDYCRAFTS, INC. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended ------------------------ -------------------------- December 31, December 31, December 31, December 31, 1994 1993 1994 1993 --- ---- ---- ---- Net sales $ 75,619 $ 63,092 $ 141,131 $ 105,579 ------------ ------------ ------------ ------------ Operating costs and expenses: Cost of goods sold 44,572 37,686 84,374 62,579 Selling, general and administrative 22,583 18,441 42,888 32,351 Depreciation and amortization 1,207 1,022 2,556 1,820 ------------ ------------ ------------ ------------ Total operating costs and expenses 68,362 57,149 129,818 96,750 ------------ ------------ ------------ ------------ Operating income 7,257 5,943 11,313 8,829 Interest and other investment income 15 39 19 67 Interest expense 965 395 1,795 596 ------------ ------------ ------------ ------------ Income before provision for income taxes 6,307 5,587 9,537 8,300 Provision for income taxes 2,210 2,185 3,386 3,189 ------------ ------------ ------------ ------------ Net income $ 4,097 $ 3,402 $ 6,151 $ 5,111 ============ ============ ============ ============ Net income per share $ 0.36 $ 0.30 $ 0.54 $ 0.45 ============ =========== ============ ============ Weighted average common and common equivalent shares 11,383 11,506 11,298 11,442 ============ =========== ============ ============
TANDYCRAFTS, INC. Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited) December 31, June 30, 1994 1994 ----------- --------- ASSETS Current assets: Cash, including short-term investments $ 5,419 $ 1,506 Trade accounts receivable, net of allowance for doubtful accounts of $837 and $441, respectively 33,734 26,021 Inventories 61,259 53,297 Other current assets 5,221 4,590 ---------- --------- Total current assets 105,633 85,414 ---------- --------- Property and equipment, at cost 48,180 42,303 Less-accumulated depreciation (19,102) (17,350) ---------- --------- Property and equipment, net 29,078 24,953 ---------- --------- Other assets 624 739 Goodwill 51,675 39,325 ---------- --------- $ 187,010 $150,431 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: ESOP loan, current portion $ 4,000 $ 4,000 Accounts payable 15,858 11,333 Accrued liabilities and other 21,895 12,878 ---------- --------- Total current liabilities 41,753 28,211 ---------- --------- Long-term debt 55,000 41,600 Deferred income taxes 1,538 1,538 Stockholders' equity: Common stock, $1 par value, 50,000,000 shares authorized, 18,527,988 shares issued 18,528 18,528 Additional paid-in capital 15,561 13,158 Retained earnings 81,018 74,867 Cost of stock in treasury, 7,076,723 shares and 7,367,357 shares, respectively (26,388) (27,471) ---------- --------- Total stockholders' equity 88,719 79,082 ---------- --------- $ 187,010 $150,431 ========== ========= TANDYCRAFTS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended December 31, December 31, 1994 1993 ----------- ----------- Net cash flows from operating activities $ (3,383) $ (7,860) ----------- ----------- Cash flows from investing activities: Additions to property and equipment, net, excluding the effect of businesses acquired (6,044) (2,097) Purchase of businesses, net of cash acquired (3,320) (34,475) ----------- ----------- Net cash used for investing activities (9,364) (36,572) ----------- ----------- Cash flows from financing activities: Sales of treasury stock to employee benefit program 3,260 994 Purchase of treasury stock (174) ESOP loan payments received 1,943 Borrowings under bank credit facility, net 13,400 37,000 ----------- ----------- Net cash provided by financing activities 16,660 39,763 ----------- ----------- Increase (decrease) in cash, including short-term investments 3,913 (4,669) Balance, beginning of period 1,506 12,075 ----------- ----------- Balance, end of period $ 5,419 $ 7,406 =========== =========== TANDYCRAFTS, INC. Condensed Consolidated Statement of Stockholders' Equity (Dollars in thousands) (Unaudited) Additional Common paid-in Retained Treasury stock capital earnings stock Total ------- -------- -------- ------- ----- Balance, June 30, 1994 $18,528 $13,158 $74,867 $(27,471) $79,082 Sale of 275,541 shares of treasury stock to employee benefit program - 2,233 - 1,027 3,260 Contingent payment for business acquired 170 56 226 Net income for six months ended December 31, 1994 - - 6,151 - 6,151 ------- ------- ------- -------- ------- Balance, December 31, 1994 $18,528 $15,561 $81,018 $(26,388) $88,719 ======= ======= ======= ======== =======
TANDYCRAFTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the Company's financial position as of December 31, 1994 and June 30, 1994, and the results of operations and cash flows for the six-month periods ended December 31, 1994 and December 31, 1993. Certain prior year amounts have been reclassified to conform to the current year classification. The results of operations for the three and six-month periods ended December 31, 1994 and 1993 are not necessarily indicative of the results to be expected for the full fiscal year. The consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the Company's 1994 Annual Report to Stockholders. NOTE 2 - REVOLVING CREDIT FACILITY In September 1994, the Company's $50 million revolving credit facility with a group of banks was expanded to $60 million under the existing terms. NOTE 3 - INVENTORIES The components of inventories at December 31, 1994 consisted of the following (in thousands): Merchandise held for sale $42,667 Raw materials and work-in-process 18,592 ------- $61,259 ======= NOTE 4 - EARNINGS PER SHARE Net income per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding during the periods. For the three and six-month periods ended December 31, 1994 and 1993, the number of weighted average shares and common stock equivalents is as follows (in thousands): Three Months Ended Six Months Ended December 31, December 31, ----------------- ----------------- 1994 1993 1994 1993 ------- ------- ------- ------ Weighted average shares 11,375 11,209 11,289 11,198 Common stock equivalents 8 297 9 244 ------- ------- ------- ------- Total weighted average common and common equivalent shares 11,383 11,506 11,298 11,442 ======= ======= ======= ======= NOTE 5 - ACQUISITION 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 $3.2 million in cash and resulted in the recording of goodwill of $2.5 million, which is being amortized over forty years. This acquisition is considered insignificant for presentation of pro forma information. NOTE 6 - CONTINGENT PAYMENT In connection with the November 1993 acquisition of Impulse Designs, the Asset Purchase Agreement provides for a contingent cash payment to be made on or before March 31, 1995 based upon the attainment of certain earnings thresholds for the year ended December 31, 1994. The estimated contingent payment of $10 million, subject to audit, has been accrued in the December 31, 1994 balance sheet. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Tandycrafts, Inc. (the "Company") operates in two primary industry segments, specialty retail and specialty manufacturing. The specialty retail group 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 70 stores located in eight states; Sav-On Discount Office Supplies, which sells office supplies and related products through a chain of 30 stores located primarily in smaller markets; and Cargo Furniture and Accents, which sells a proprietary line of solid wood furniture and decorative accessories through a chain of 41 stores located primarily in regional shopping malls. The specialty manufacturing segment is comprised of four divisions: picture frames and framed art, belts and accessories, outerwear and TWI. The following table presents selected financial data for each significant company or division comprising the Company's two primary industry segments for the three and six-month periods ended December 31, 1994 and 1993 (in thousands): Three Months Ended December 31, -------------------------------------- 1994 1993 % Increase (Decrease) ----------------- ------------------ ---------------------- Operating Operating Operating Sales Income Sales Income Sales Income ------- --------- -------- --------- ------ ----------- Specialty retail: - ---------------- Tandy Leather $14,005 $1,701 $14,884 $2,114 (5.9)% (19.5)% Sav-On Discount Office Supplies 4,569 (548) 3,365 24 35.8 (2383.3) Joshua's Christian Stores 10,326 1,078 8,046 1,088 28.3 (0.9) Cargo Furniture & Accents 5,117 245 5,450 276 (6.1) (11.2) ------- ------ ------- ------ ----- ------- Specialty retail 34,017 2,476 31,745 3,502 7.2 (29.3) ------- ------ ------- ------ ----- ------- Specialty manufacturing: - ----------------------- Picture frames and framed art 27,919 6,111 18,712 2,056 49.2 197.2 Belts and accessories 3,714 (278) 3,804 237 (2.4) (217.3) Outerwear 4,000 (386) 5,055 253 (20.9) (252.6) TWI 5,969 796 3,776 953 58.1 (16.5) ------- ------ ------- ------ ------ ------- Specialty manufacturing 41,602 6,243 31,347 3,499 32.7 78.4 ------- ------ ------- ------ ------ ------- Total operations, excluding corporate $75,619 $8,719 $63,092 $7,001 19.9% 24.5% ======= ====== ======= ====== ====== ======= Six Months Ended December 31, -------------------------------------- 1994 1993 % Increase (Decrease) ----------------- ----------------- --------------------- Operating Operating Operating Sales Income Sales Income Sales Income ------- --------- ------- --------- ----- ----------- Specialty retail: - ---------------- Tandy Leather $25,314 $2,530 $26,049 $2,787 $(2.8)% $ (9.2)% Sav-On Discount Office Supplies 9,827 (710) 7,373 125 33.3 (668.0) Joshua's Christian Stores 16,342 883 12,068 854 35.4 3.4 Cargo Furniture & Accents 10,849 646 11,095 566 (2.2) 14.1 ------- ------ ------- ------ ------ ------- Specialty retail 62,332 3,349 56,585 4,332 10.2 (22.7) ------- ------ ------- ------ ------ ------- Specialty manufacturing: - ----------------------- Picture frames and framed art 49,545 9,470 28,488 3,189 73.9 197.0 Belts and accessories 8,105 (381) 5,332 534 52.0 (171.3) Outerwear 9,179 (399) 8,406 489 9.2 (181.6) TWI 11,970 1,853 6,768 1,743 76.9 6.3 ------- ------ ------ ------ ------ ------ Specialty manufacturing 78,799 10,543 48,994 5,955 60.8 77.0 ------- ------ ------ ------ ------ ------ Total operations, excluding corporate $141,131 $13,892 $105,579 $10,287 33.7% 35.0% ======== ======= ======== ======= ===== ======
RESULTS OF OPERATIONS Net sales Consolidated net sales during the three and six-month periods ended December 31, 1994 as compared to the same period of last year increased 19.9% and 33.7% , respectively. Discussions relative to each of the Company's industry segments are set forth below. Specialty retail Net sales for the specialty retail segment were up 7.2% for the quarter and 10.2% for the six months ended December 31, 1994 over the same periods of last year. Tandy Leather Company had total net sales decreases of 5.9% and 2.8% for the three and six-month periods ended December 31, 1994, respectively. The decrease in sales reflects a decrease in the average number of transactions per store compared to the same periods last year as a result of a decline in popularity of southwest fashion merchandise. Sav-On Discount Office Supplies ("Sav-On") achieved total net sales increases of 35.8% and 33.3% for the quarter and six-month periods ended December 31, 1994, respectively, compared to the same periods last year. The increase was due primarily to the effect of new store openings. Sav-On had 30 stores open at December 31, 1994, including six stores opened during the quarter, compared to 16 stores open a year ago. Same-store sales were basically flat for the quarter and for the six months ended December 31, 1994 primarily as a result of management's decision to forego certain low-margin contract sales at the store level in July and December. Joshua's Christian Stores (Joshua's) had total net sales increases of 28.3% and 35.4% for the three and six-month periods ended December 31, 1994, respectively, compared to the same periods last year. The increase in net sales was primarily the result of an aggressive store expansion program initiated during fiscal 1994, resulting in the addition of 13 stores since December 31, 1993. Same store sales increased 6% for both the three and six-month periods, respectively, reflecting successful in-store promotions and an expanding customer base as Joshua's newer stores continue to mature. Total net sales for Cargo Furniture & Accents ("Cargo") decreased 6.1% for the quarter and 2.2% for the six months ended December 31, 1994, respectively, compared to the corresponding periods a year ago primarily as a result of having fewer stores open. At December 31, 1994 there were 41 Cargo stores open compared to 46 stores open at December 31, 1993. Cargo's same-store sales increases for the three and six-month periods ended December 31, 1994 of 1% and 4%, respectively, reflect primarily the effect of new product introductions. Specialty manufacturing Net sales for the specialty manufacturing segment increased 32.7% and 60.8% for the three and six-month periods ended December 31, 1994, respectively, compared to the same periods of the previous year. The increase in sales for the picture frames and framed art division was 49.2% and 73.9% for the three and six-month periods ended December 31, 1994, respectively, compared to the same periods of the previous year. The increase in sales for the three and six-month periods reflects the contribution of Impulse Designs which was acquired effective as of November 1, 1993. The increase in sales also reflects continued strong demand from existing customers and the addition of new customers for both the Magee Company and Impulse Designs. Net sales for the belts and accessories division decreased 2.4% for the quarter and increased 52.0% for the six months ended December 31, 1994 compared to the corresponding periods of the previous year. The decrease in sales for the quarter reflects significantly lower sales for Prestige Leather as a result of weak demand in its cut-up division due to changes in fashion trends away from belted women's garments and continued softness in the western apparel market. The increase in net sales for the six-month period reflects the acquisition of Prestige Leather Creations effective as of November 1, 1993. Net sales for the outerwear division decreased 20.9% for the quarter and increased 9.2% for the six months ended December 31, 1994 compared to the corresponding periods of the previous year. The sales increase for the six- month period primarily reflects the contribution of Birdlegs, which was acquired effective October 1, 1993. Sales for both the quarter and six months were adversely affected by continued soft demand experienced in the western apparel market and the warm fall and early winter weather conditions which affected the sale of jackets and sweatshirts. Net sales for the Tandy Wholesale International division ("TWI"), increased 58.1% and 76.9% for the three and six-month periods ended December 31, 1994, respectively, compared to the same periods last year. The increase in net sales for the quarter reflects the contributions of Rivertown Button and College Flags which were acquired effective April 1, 1994 and June 1, 1994, respectively. The increase in net sales for the six-month period reflects the contributions of Rivertown Button and College Flags as well as the contribution from Tag Express, which was acquired effective September 1, 1993. The increase in sales for the six months also reflects strong sales gains from the wholesale operations of the Tandy Leather Company. Operating income Total operating income before corporate expenses increased 24.5% and 35.0% for the three and six-month periods ended December 31, 1994, respectively, compared to the same periods last year. A discussion of operating income for each segment follows: Specialty retail Operating income for the specialty retail segment decreased 29.3% and 22.7% for the three and six-month periods ended December 31, 1994, respectively, compared to the corresponding periods last year. Operating income for Tandy Leather decreased 19.5% and 9.2% for the quarter and six months, respectively, compared to the same periods last year. The decrease in operating income is a result of the decrease in sales, particularly sales of Southwest fashion items with their corresponding higher gross profit. Sav-On experienced operating losses of $548,000 and $710,000 for the three and six-month periods ended December 31, 1994, respectively, compared to operating income of $24,000 and $125,000 for the respective periods last year. The fluctuation in operating income is due primarily to start-up and administrative costs incurred in expanding the store base from 16 stores at December 31, 1993 to 30 stores at December 31, 1994, including six stores opened during the quarter. While year-to-date gross margins were up slightly compared to a year ago, this increase was offset by the increase in general and administrative expenses. During fiscal 1994, Sav-On embarked on an aggressive store expansion plan. Accordingly, administrative expenses have increased as a percent of sales compared to the same period last year reflecting the investment made to strengthen the management team at Sav-On and to build the necessary infrastructure to support a larger store base. Current plans call for 37 stores open by June 30, 1995. Operating income for Joshua's Christian Stores decreased 0.9% for the quarter and increased 3.4% for the six months ended December 31, 1994 compared to the same periods last year. While gross margins for the quarter and six months remained relatively consistent with the prior year periods, selling, general and administrative expenses increased as a percent of sales primarily due to increased advertising expenses and increased administrative expenses associated with the installation and implementation of a new merchandising system. These costs reflect an investment made in building the necessary systems and infrastructure to support a much larger store base and provide management with tools to improve overall inventory management. The effects of the new merchandising system, however, are not expected to be seen until fiscal 1996 when the system is fully implemented. Operating income for Cargo Furniture & Accents decreased 11.2% for the quarter and increased 14.1% for the six months ended December 31, 1994 compared to the same periods last year. The decrease in operating income for the quarter compared to the same period last year is primarily due to a decrease in sales. Gross margins for the quarter were basically unchanged from a year ago. Total selling, general and administrative expenses in dollars decreased slightly from a year ago, however, they increased as a percentage of sales as a result of the decreased sales. The increase in operating income for the six months ended December 31, 1994 compared to the same period last year continues to reflect cost savings realized from an internal reorganization resulting in decreased expenses. Specialty manufacturing Operating income for the specialty manufacturing segment increased 78.4% and 77.0% for the three and six-month periods ended December 31, 1994, respectively, compared to the corresponding periods of the prior year. Operating income for the picture frames and framed art division increased 197.2% and 197.0% for the three and six-month periods ended December 31, 1994, respectively, compared to the corresponding periods of the prior year. The increase in operating income for the quarter and six months reflects the contribution of Impulse Designs which was acquired effective November 1, 1993. The increase in operating income is a result of increased sales and improved gross margins resulting from manufacturing efficiency gains, a more profitable sales mix and selective price increases on certain items. The belts and accessories division had operating losses of $278,000 and $381,000 for the three and six-month periods ended December 31, 1994, respectively, compared to operating income of $237,000 and $534,000 for the same periods last year, respectively. The decrease in operating income for the quarter and six months compared to the same periods last year reflect the 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 materials costs, primarily leather. The outerwear division had operating losses of $386,000 and $399,000 for the three and six-month periods ended December 31, 1994, respectively, compared to operating income of $253,000 and $489,000 for the same periods last year, respectively. The decrease in operating income for the quarter and six months compared to the same periods last year reflect the softness in demand experienced in the western apparel market as well as the warm fall and early winter weather conditions which adversely affected sales of sweatshirts and jackets. Gross margins were also lower due to increased raw material and labor costs which could not be passed on to customers. TWI's operating income decreased 16.5% for the quarter and increased 6.3% for the six months ended December 31, 1994 compared to the same periods of the prior year. The decrease in operating income for the quarter reflects the effect of the Major League Baseball players strike and the National Hockey League players strike on the sales of related licensed products. The increase in operating income for the six months primarily reflects the contributions of Tag Express, Rivertown Button and College Flags, acquired September 1, 1993, April 1, 1994 and June 1, 1994, respectively. Selling, general and administrative expenses Consolidated selling, general and administrative expenses were 29.9%, 30.4%, 29.2% and 30.6% of sales for the three and six-month periods ended December 31, 1994 and 1993, respectively. In total dollars, selling, general and administrative expenses increased $4.1 million and $10.5 million, respectively, for the three and six-month periods ended December 31, 1994 compared to the same periods of the prior year. The increase in expenses in dollars was primarily due to acquisitions and new store openings. Interest expense and investment income Net interest expense increased $594,000 (166.9%) and $1,247,000 (235.7%) for the three and six-month periods ended December 31, 1994, respectively, compared to the same periods of the prior year. The increase in net interest expense was due to an increase in average borrowings during the periods, increased interest rates on borrowings and lower interest income on invested cash balances. Provision for income taxes The Company's effective income tax rate for the six months ended December 31, 1994 was 35.5% compared to 38.4% for the same period last year. The reduction in the effective rate reflects the Company's utilization of both federal and state hiring tax credit programs as well as tax benefits generated from the creation of a Foreign Sales Corporation. LIQUIDITY AND CAPITAL RESOURCES The primary sources of liquidity are from cash flows from operations, sales of treasury stock to employee benefit plans and borrowings under the Company's revolving credit facility. The funds generated from these sources have been used primarily to finance acquisitions, purchase property and equipment, reduce the ESOP loan balance and finance growth in inventories and receivables. During the six months ended December 31, 1994, cash increased approximately $3.9 million. Cash used by operations of approximately $3.4 million resulted primarily from an increase in receivables and inventories, partially offset by an increase in accounts payable. The increase in receivables, inventories and accounts payable relate mainly to new store expansion and sales increases requiring the expansion of working capital. Cash used for investing activities of approximately $9.4 million resulted primarily from capital expenditures for property and equipment and the acquisition of the Novelty Division of Trench Manufacturing Company, Inc., which required a cash payment of approximately $3.2 million. Cash of approximately $16.7 million was provided by financing activities, primarily from borrowings under the Company's revolving credit facility. In September 1994, the Company's $50 million revolving credit facility with a group of banks was increased to $60 million under the existing terms. In connection with the November 1993 acquisition of Impulse Designs, the Asset Purchase Agreement provides for a contingent cash payment to be made on or before March 31, 1995 based upon the attainment of certain earnings thresholds for the year ended December 31, 1994. The estimated contingent payment of $10 million, subject to audit, has been accrued in the December 31, 1994 balance sheet. This payment is expected to be financed from the Company's current cash position, cash flows from operations and from the Company's revolving credit facility. Capital expenditures totaled approximately $6.0 million for the six months ended December 31, 1994. Planned capital expenditures for the remainder of fiscal 1995 approximate $1.7 million. Current store expansion plans call for Sav-On Discount Office Supplies to open 7 new stores and Joshua's Christian Stores to open 2 new stores for the remainder of fiscal 1995. Funding for new store expansion planned for the remainder of fiscal 1995, exclusive of capital expenditures, will approximate $1.3 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 pennants, bumper stickers, foam hands and other novelty items. The acquisition was made for approximately $3.2 million in cash and resulted in the recording of goodwill of $2.5 million, which is being amortized over forty years. This acquisition did not have a significant impact on sales or operating income for the quarter ended December 31, 1994. The Company continues to evaluate acquisition candidates which complement its existing businesses. To the extent that the Company utilizes debt to finance future acquisitions and goodwill associated with 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. TANDYCRAFTS, INC. PART II - OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders The following proposals were approved at the Company's annual meeting held on November 9, 1994: Affirmative Votes Against Votes or Withheld ---------- ------------- 1. Election of management's slate of nominees to serve as Directors: B. Franklin Bigger 6,880,155 741,779 R. Earl Cox III 6,719,967 901,967 Jerry L. Roy 7,356,843 265,091 Joe K. Pace 6,788,928 833,006 Carol Smith 7,350,298 271,636 Robert Schutts 7,239,512 382,422 Michael J. Walsh 7,272,552 349,382 2. Approve change of corporate name 6,055,041 1,566,893 3. Approve amendment of the Tandycrafts, Inc. 1992 Director Stock Option Plan 6,355,053 1,266,881 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: EX27 Financial Data Schedule (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K, dated January 24, 1995, announcing the unaudited results of operations for the three and six-month periods ended December 31, 1994. TANDYCRAFTS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TANDYCRAFTS, INC. (Registrant) Date: February 10, 1995 By:/s/Jerry L. Roy Jerry L. Roy President, Chief Executive Officer and Director Date: February 10, 1995 By:/s/Michael J. Walsh Michael J. Walsh Executive Vice President and Chief Financial Officer, Secretary, General Counsel and Director (Principal Financial Officer) Date: February 10, 1995 By:/s/Jim D. Schultz Jim D. Schultz Sr. Vice President and Director of Accounting, Finance and MIS (Principal Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Tandycrafts, Inc.'s Form 10-Q for the quarter ended December 31, 1994 and is qualified in its entirety by reference to such 10-Q filing. 1,000 6-MOS JUN-30-1995 DEC-31-1994 5,419 0 34,571 (837) 61,259 105,633 48,180 (19,102) 187,010 41,753 0 18,528 0 0 70,191 187,010 141,131 141,131 84,374 84,374 45,444 0 1,795 9,537 3,386 6,151 0 0 0 6,151 .54 .54
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