-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LwitLOd+ynXvcXDTFfuoPyLeaNylZhijF2zg18DNuEUIL4tDMEhhgUJzI57sGDUW 2Vx+voWYNY+B3eLxEabaVw== 0000096294-95-000012.txt : 19951002 0000096294-95-000012.hdr.sgml : 19951002 ACCESSION NUMBER: 0000096294-95-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950928 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07258 FILM NUMBER: 95576847 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-K 1 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. EX-10.1 2 EXHIBIT 10.1 TANDYCRAFTS, INC. Executive Officers Incentive Bonus Plan The annual incentive bonus program for executive officers is the principal short-term incentive compensation program of the Corporation. Cash bonuses are paid following the conclusion of the Corporation's fiscal year. These cash bonus awards are based upon the extent to which the Corporation meets or exceeds specified pretax profit thresholds designated by the Compensation Committee of the Board of Directors at the beginning of the Corporation's fiscal year. The Committee establishes a threshold, target and maximum bonus payable for specified levels of pretax profits for each executive officer. The minimum and maximum bonus amount for each executive officer is equal to 50% and 150%, respectively, of the target bonus amount. EX-3.2 3 EXHIBIT 3.2 TANDYCRAFTS, INC. AMENDED AND RESTATED BYLAWS ARTICLE I OFFICES. SECTION 1. Registered Office. The registered office of the Corporation in the State of Delaware shall be located in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof shall be The Corporation Trust Company. SECTION 2. Other Offices. The principal office of the Corporation and such other offices as may be deemed appropriate shall be at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS. SECTION 1. Place of Meeting. All meetings of the stockholders for the election of directors shall be held at such place within or without the State of Delaware as the Board of Directors may designate, provided that at least ten (10) days' notice must be given to the stockholders entitled to vote thereat of the place so fixed. Meetings of stockholders for any other purpose may be held at such place and time as shall be stated in the notice of the meeting. SECTION 2. Annual Meetings. The Annual Meeting of the Stockholders of the Corporation for the election of directors by a plurality vote and for the transaction of such other business as may properly come before the meeting shall be held each year on the second Wednesday of November, if not a legal holiday, and if a legal holiday, then on the following day, at 9:30 a.m. at the corporate office of Tandycrafts, Inc. or at such other time or place as the directors may determine as provided in Section 1 of Article II of these By-Laws. SECTION 3. Special Meetings. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute or the Certificate of Incorporation, may be called by the Chairman of the Board or by the directors (either by written instrument signed by a majority or by resolution adopted by a vote of the majority, and special meetings shall be called by the Chairman of the Board or the President or the Secretary whenever stockholders owning a majority of the capital stock issued, outstanding and entitled to vote so request in writing. Such request shall state the purpose or purposes of the proposed meeting. SECTION 4. Notice. Written or printed notice of every meeting of stockholders, annual or special, stating the time and place thereof, and, if a special meeting, the purpose or purposes in general terms for which the meeting is called, shall not less than ten (10) days before such meeting be served upon or mailed to each stockholder entitled to vote thereat, at his address as it appears upon the books of the Corporation or, if such stockholder shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, then to the address designated in such request. SECTION 5. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the presence in person or by proxy at any meeting of stockholders of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote thereat shall be requisite and shall constitute a quorum. If, however, such majority shall not be represented at any meeting of the stockholders regularly called, the holders of a majority of the shares present in person or by proxy and entitled to vote thereat shall have power to adjourn the meeting to another time, or to another time and place, without notice other than announcement of adjournment at the meeting, and there may be successive adjournments for like cause and in like manner until the requisite amount of shares entitled to vote at such meeting shall be represented. At such adjourned meeting at which the requisite amount of shares entitled to vote thereat shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 6. Votes. Proxies. At each meeting of stockholders every stockholder shall have one vote for each share of capital stock entitled to vote which is registered in his name on the books of the Corporation on the date on which the transfer books were closed, if closed, or on the date set by the Board of Directors for the determination of stockholders entitled to vote at such meeting. At each such meeting every stockholder shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to the meeting in question, unless said instrument provides for a longer period during which it is to remain in force. At all meetings of the stockholders, a quorum being present, all matters shall be decided by majority vote of the shares of stock entitled to vote held by stockholders present in person or by proxy, except as otherwise required by the Certificate of Incorporation or the laws of the State of Delaware. Unless so directed by the chairman of the meeting, or required by the laws of the State of Delaware, the vote thereat on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or in his name by his proxy, if there be such proxy, and shall state the number of shares voted by him and the number of votes to which each share is entitled. On a vote by ballot, the chairman shall appoint two inspectors of election, who shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of their ability and who shall take charge of the polls and after the balloting shall make a certificate of the result of the vote taken; but no director or candidate for the office of director shall be appointed as such inspector. SECTION 7. Stock List. At least ten (10) days before every election of directors, a complete list of stockholders entitled to vote at such election, arranged in alphabetical order, with the residence of each and the number of voting shares held by each shall be prepared by the Secretary. Such list shall be open at the place where the election is to be held for said ten (10) days, to the examination of any stockholder entitled to vote at that election and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. ARTICLE III DIRECTORS. SECTION 1. Number. The business and property of the Corporation shall be conducted and managed by a Board consisting of such number of directors, but not less than three (3), as may be fixed from time to time by resolution adopted by the Board or by the stockholders. Directors need not be stockholders. SECTION 2. Term of Office. Except as otherwise provided by law, each director shall hold office until the next annual meeting of stockholders, and until his successor is duly elected and qualified or until his earlier death or resignation. SECTION 3. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors SECTION 4. Vacancies. If any vacancy shall occur among the directors, or if the number of directors shall at any time be increased, the directors in office, although less than a quorum, by a majority vote may fill the vacancies or newly created directorships, or any such vacancies or newly created directorships may be filled by the stockholders at any meeting. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as herein provided in the filling of other vacancies. SECTION 5. Meetings. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board of Directors or by the Chairman of the Board, or by the President or as may be specified in the notice or waiver of notice of any meeting. Meetings may be held at any time upon the call of the Chairman of the Board, the President or the Secretary or any two (2) of the directors in office by oral, telegraphic, or written notice, duly served or sent or mailed to each director not less than one (1) day before such meeting. Meetings may be held at any time and place without notice if all the directors are present, or if those not present shall in writing or by telegram or cable waive notice thereof. A regular meeting of the Board of Directors may be held without notice immediately following the annual meeting of stockholders at the place where such annual meeting is held. Regular meetings of the Board may also be held without notice at such time and place as shall from time to time be determined by resolution of the Board of Directors. SECTION 6. Quorum. One-third, but not less than two (2), of the directors shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice other than announcement of the adjournment at the meeting, and at such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 7. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, a fixed sum for attendance at each meeting of the Board of Directors and/or a stated fee as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the Executive Committee and/or of other committees may be allowed like compensation and reimbursement of expenses for attending committee meetings. ARTICLE IV EXECUTIVE COMMITTEE AND OTHER COMMITTEES. SECTION 1. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of two (2) or more members, to serve during the pleasure of the Board of Directors, to consist of such directors as the Board of Directors may from time to time designate. The Chairman of the Executive Committee shall be designated by the Board of Directors. SECTION 2. Procedure. The Executive Committee, by a vote of a majority of its members, shall fix its own times and places of meeting, shall determine the number of its members constituting a quorum for the transaction of business, and shall prescribe its own rules of procedure, no change in which shall be made save by a majority vote of its members. SECTION 3. Powers. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all the powers of the Board of Directors in the management and direction of the business and affairs of the Corporation, to the extent permitted by law. SECTION 4. Minutes. The Executive Committee shall keep regular minutes of its proceedings and all action by the Executive Committee shall be reported to the Board of Directors at its next meeting. Such action shall be subject to review by the Board of Directors, provided that no rights of third parties shall be affected by such review. SECTION 5. Other Committees. From time to time the Board of Directors, by the affirmative vote of a majority of the whole Board of Directors, may appoint other committees for any purpose or purposes, and such committees shall have such powers as shall be conferred by the resolution of appointment, and as shall be permitted by law. ARTICLE V OFFICERS. SECTION 1. Officers. The Board of Directors shall elect, as officers, a President, one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Treasurer and a Secretary, and in their discretion one or more Assistant Secretaries, and Assistant Treasurers. Such officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders, and each shall hold office until the corresponding meeting of the Board of Directors in the next year and until his successor shall have been duly elected and qualified, or until he shall have died or resigned or shall have been removed in the manner provided herein. The powers and duties of two or more offices may be exercised and performed by the same person, except the offices of President and Secretary. SECTION 2. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. SECTION 3. President. The President shall be the chief executive officer of the Corporation. Subject to the direction of the Board of Directors, he shall have and exercise direct charge of and general supervision over the business and affairs of the Corporation and shall perform such other duties as may be assigned to him from time to time by the Board of Directors. SECTION 4. Vice Presidents. The Vice Presidents shall, in the order of their seniority or in such order as may be specified by the Board of Directors, have and perform all the powers and duties of the President, in his absence or disability, and shall in addition have and exercise such powers and shall perform such duties as from time to time may be conferred upon or assigned to them by the Board of Directors or as may be delegated to them by the Chairman of the Board or the President. SECTION 5. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositaries as shall, from time to time, be selected by the Board of Directors; he may endorse for collection on behalf of the Corporation, checks, notes and other obligations; he may sign receipts and vouchers for payments made to the Corporation; singly or jointly with another person as the Board of Directors may authorize, he may sign checks of the Corporation and pay out and dispose of the proceeds under the direction of the Board of Directors; he shall cause to be kept correct books of account of all the business and transactions of the Corporation, shall see that adequate audits thereof are currently and regularly made, and shall examine and certify the accounts of the Corporation; he shall render to the Board of Directors, the Executive Committee, the Chairman of the Board or to the President, whenever requested, an account of the financial condition of the Corporation; he may sign with the President or a Vice President, certificates of stock of the Corporation; and, in general, shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 6. Assistant Treasurers. The Assistant Treasurers in order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the President or the Board of Directors shall prescribe. SECTION 7. Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of law and these Bylaws; he shall be custodian of the records and of the corporate seal or seals of the Corporation; he shall see that the corporate seal is affixed to all documents, the execution of which, on behalf of the Corporation, under its seal, is duly authorized and when the seal is so affixed he may attest the same; he may sign, with the President or a Vice President, certificates of stock of the Corporation; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Assistant Secretaries. The Assistant Secretaries in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the President or the Board of Directors shall prescribe. SECTION 9. Subordinate Officers. The Board of Directors may appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers and to prescribe the powers and duties thereof. SECTION 10. Compensation. The Board of Directors shall have power to fix the compensation of all officers of the Corporation. It may authorize any officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the compensation of such subordinate officers. SECTION 11. Removal. Any officer of the Corporation may be removed, with or without cause, by a majority vote of the Board of Directors at a meeting called for that purpose. SECTION 12. Bonds. The Board of Directors may require any officer of the Corporation to give a bond to the Corporation, conditional upon the faithful performance of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. ARTICLE VI CERTIFICATES OF STOCK. SECTION 1. Form and Execution of Certificates. The interest of each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock in such form as may be prescribed from time to time by law and by the Board of Directors. The certificates of stock of each class and series now authorized or which may hereafter be authorized by the Certificate of Incorporation shall be consecutively numbered and signed by either the President or a Vice President together either with the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation, and may be countersigned and registered in such manner as the Board of Directors may prescribe, and shall bear the corporate seal or a printed or engraved facsimile thereof. Where any such certificate is signed by a transfer agent or transfer clerk and by a registrar, the signatures of any such President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary upon such certificate may be facsimiles engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been placed upon, such certificate or certificates shall have ceased to be such, whether because of death, resignation or otherwise, before such certificate or certificates shall have been issued and delivered, such certificate or certificates may nevertheless be issued and delivered with the same effect as if such officer or officers had not ceased to be such at the date of its issue and delivery. SECTION 2. Transfer of Shares. The shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his attorney lawfully constituted, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof or guaranty of the authenticity of the signature as the Corporation or its agents may reasonably require. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. SECTION 3. Closing of Transfer Books and Record Dates. The Board of Directors may in its discretion prescribe in advance a period not exceeding fifty (50) days prior to the date of any meeting of the stockholders or prior to the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose without a meeting, during which no transfer of stock on the books of the Corporation may be made; or in lieu of prohibiting the transfer of stock, may fix in advance a time not more than fifty (50) days prior to the date of any meeting of stockholders or prior to the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose without a meeting, as the time as of which stockholders entitled to notice of and to vote at such a meeting or whose consent or dissent is required or may be expressed for any purpose, as the case may be, shall be determined; and all persons who were holders of record of voting stock at such time and no others shall be entitled to notice of and to vote at such meeting or to express their consent or dissent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any record date fixed as aforesaid. The Board of Directors may also, in its discretion, fix in advance a date not exceeding fifty (50) days preceding the date fixed for the payment of any dividend or the making of any distribution, or for the delivery of evidence of rights, or evidences of interests arising out of any issuance, change, conversion or exchange of capital stock, as a record date for the determination of the stockholders entitled to receive or participate in any such dividend, distribution, rights or interests, notwithstanding any transfer of any stock on the books of the Corporation after any record date fixed as aforesaid, or, at its option, in lieu of so fixing a record date, may prescribe in advance a period not exceeding fifty (50) days prior to the date for such payment, distribution or delivery during which no transfer of stock on the books of the Corporation may be made. SECTION 4. Lost or Destroyed Certificates. In case of the loss or destruction of any outstanding certificate of stock, a new certificate may be issued upon the following conditions: The owner of said certificate shall file with the Secretary of the Corporation an affidavit giving the facts in relation to the ownership, and in relation to the loss or destruction of said certificate, stating its number and the number of shares represented thereby; such affidavit to be in such form and contain such statements as shall satisfy the President and Secretary that said certificate has been accidentally destroyed or lost, and that a new certificate ought to be issued in lieu thereof. Upon being so notified, the President and Secretary shall require such owner to file with the Secretary a bond in such penal sum and in such form as they may deem advisable, and with a surety or sureties approved by them, to indemnify and save harmless the Corporation from any claim, loss, damage or liability which may be occasioned by the issuance of a new certificate in lieu thereof. Upon such bond being so filed, a new certificate for the same number of shares shall be issued to the owner of the certificate so lost or destroyed; and the transfer agent and registrar of stock, if any, shall countersign and register such new certificate upon receipt of a written order signed by the said President and Secretary, and thereupon the Corporation will save harmless said transfer agent and registrar in the premises. Any Vice President may act hereunder in the stead of the President, and an Assistant Secretary in the stead of the Secretary. In case of the surrender of the original certificate, in lieu of which a new certificate has been issued, or the surrender of such new certificate, for cancellation, the bond of indemnity given as a condition of the issue of such new certificate may be surrendered. A new certificate may be issued without requiring any bond when in the judgment of the Board of Directors it is proper to do so. ARTICLE VII CHECKS, NOTES, ETC. SECTION 1. Execution of Checks, Notes, etc. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. SECTION 2. Execution of Contracts, Assignments, etc. All contracts, agreements, endorsements, assignments, transfers, stock powers, or other instruments (except as provided in Sections 1 and 3 of this Article VII) shall be signed by the President or any Vice President and by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer, or by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors. SECTION 3. Execution of Proxies. The President or a Vice President of the Corporation may authorize from time to time the signature and issuance of proxies to vote upon shares of stock of other companies standing in the name of the Corporation. All such proxies shall be signed in the name of the Corporation by the President or a Vice President and by the Secretary or an Assistant Secretary. ARTICLE VIII WAIVERS AND CONSENTS. SECTION 1. Waivers. Whenever under the provisions of any law or under the provisions of the Certificate of Incorporation of the Corporation or these Bylaws, the Corporation, or the Board of Directors or any committee thereof, is authorized to take any action after notice to stockholders or the directors or the members of such committee, or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of any period of time if, at any time before or after such action be completed, such requirements be waived in writing by the person or persons entitled to said notice or entitled to participate in the action to be taken, or, in the case of a stockholder, by his attorney thereunto authorized. SECTION 2. Consents. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board of Directors or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or of such committee. ARTICLE IX DIVIDENDS AND RESERVE FUNDS. SECTION 1. Dividends. Except as otherwise provided by law or by the Certificate of Incorporation, the Board of Directors may declare dividends out of the surplus of the Corporation at such times and in such amounts as it may from time to time designate. SECTION 2. Reserve Funds. Before crediting net profits to the surplus in any year, there may be set aside out of the net profits of the Corporation for that year such sum or sums as the Board of Directors from time to time in its absolute discretion may deem proper as a reserve fund or funds to meet contingencies or for equalizing dividends or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall deem conducive to the interests of the Corporation. ARTICLE X INSPECTION OF BOOKS The Board of Directors shall determine from time to time whether, and if allowed when and under what conditions and regulations, the accounts and books of the Corporation (except such as may by statute be specifically open to inspection) or any of them shall be open to the inspection of the stockholders; and the stockholders' rights in this respect are and shall be restricted and limited accordingly. ARTICLE XI FISCAL YEAR. The fiscal year of the Corporation shall end on the thirtieth day of June of each year unless another date shall be fixed by resolution of the Board of Directors. After such date is fixed it may be changed for future fiscal years at any time or from time to time by further resolution of the Board of Directors. ARTICLE XII SEAL. The corporate seal shall be circular in form and shall contain the name of the Corporation, the State of incorporation, and the words "Corporate Seal". ARTICLE XIII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The Corporation shall indemnify and reimburse each person, and his heirs, executors or administrators, who is made or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he was or is a director, officer, employee or agent of the Corporation or was or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement, actually or reasonably incurred by him in connection with such action, suit or proceeding and shall advance the expenses defending any such action, suit or proceeding to the full extent permitted by Section 145 of the General Corporation Law of the State of Delaware as it may be amended or supplemented from time to time. Such right of indemnification or advancement of expenses of any such person shall not be deemed exclusive of any other rights to which he may be entitled under stockholders or disinterested directors of otherwise both as to action in his official capacity and as to action in another capacity while holding such office. The foregoing provisions of this Article XIII shall be deemed to be a contract between the Corporation and each person who serves in any capacity specified therein at any time while this Bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or part upon any such state of facts. ARTICLE XIV AMENDMENTS. SECTION 1. By Stockholders. These Bylaws may be amended by a majority vote of the stock entitled to vote and present or represented at any annual or special meeting of the stockholders at which a quorum is present or represented, if notice of the proposed amendment shall have been contained in the notice of the meeting. SECTION 2. By Directors. Except as otherwise specifically provided in the Bylaws, if any, adopted by the stockholders, these Bylaws may be amended by the affiramtive vote of a majority of the Board of Directors, at any regular or special meeting thereof, if notice of the proposed amendment shall have been contained in the notice of such meeting. If any Bylaw regulating an impending election of directors is adopted or amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of the stockholders for the election of directors the Bylaw so adopted or amended or repealed together with a concise statement of the chances made. EX-10.6 4 EXHIBIT 10.6 (AMENDED) TANDYCRAFTS, INC. ESOP BENEFIT RESTORATION PLAN EFFECTIVE JANUARY 1, 1993 ESOP BENEFIT RESTORATION PLAN TABLE OF CONTENTS Article I. Establishment and Purpose Page 1.1 Establishment 1 1.2 Purpose 1 Article II. Definitions and Construction 2.1 Definitions 1 2.2 Gender and Number 2 2.3 Severability 2 2.4 Applicable Law 2 2.5 Plan Not an Employment Contract 2 Article III. Participation 3.1 Participation 2 Article IV. Benefit and Payment 4.1 Account 3 4.2 Allocable Share 3 4.3 Account Adjustments 3 4.4 Vesting 3 4.5 Distribution 3 Article V. Miscellaneous Provisions 5.1 Funding 4 5.2 Tax Withholding 4 5.3 Compensation 4 5.4 Nontransferability 4 Article VI. Administration 6.1 Administration 5 6.2 Finality of Determination 5 6.3 Expenses 5 6.4 Indemnification and Exculpation 5 6.5 Payment of Attorney's Fees 6 Article VII. Merger, Amendment, and Termination 7.1 Merger, Consolidation, or Acquisition 6 7.2 Amendment and Termination 6 7.3 Adoption by Affiliates 6 TANDYCRAFTS, INC. ESOP BENEFIT RESTORATION PLAN (AMENDED) EFFECTIVE JANUARY 1, 1993 ARTICLE I. ESTABLISHMENT AND PURPOSE 1.1 Establishment. Effective as of January 1, 1993, Tandycrafts, Inc. hereby amends the Tandycrafts, Inc. ESOP Benefit Restoration Plan. 1.2 Purpose The purpose of this Plan is to provide to Plan Participants, a restoration of benefits lost under the Tandycrafts, Inc. Employee Stock Ownership Plan because of certain limitations imposed by the Internal Revenue Code. ARTICLE II. DEFINITIONS AND CONSTRUCTION 2.1 Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below unless the context otherwise requires, and when the defined meaning is intended, the term is capitalized. (a) "Account" means an account established for each participant in this Plan. (b) "Allocable Share" is defined in Section 4.2 below. (c) "Beneficiary" means the person designated by the Participant, or otherwise treated as, his beneficiary(ies) under the Qualified Plan. (d) "Board" means the board of directors of the Company or the Executive Committee of the Board. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means the Plan administrative committee which is appointed pursuant to Section 6.1 hereof.. (g) "Company" means Tandycrafts, Inc. or its successor. (h) "Company Stock" means the common stock, $1 par value, of the Company. (i) "Compensation" means, for a given Plan Year, the amount of the Participant's Compensation, as defined in the Qualified Plan, but without regard to the limitations of Code Section 401(a)(17). (j) "Matching Allocation" means, for a given Plan Year, the shares of Company Stock or other assets allocable to a Participant under the Qualified Plan resulting from Employer Contributions (including forfeitures of Employer Contributions). (k) "Participant" means an employee of the Company who is eligible to participate in this Plan pursuant to Section 3.1 hereof. (l) "Plan" means this document, the Tandycrafts, Inc. ESOP Benefit Restoration Plan, as amended from time to time. (m) "Plan Year" means the 12-month period beginning January 1 and ending December 31. (n) "Qualified Plan" means the Tandycrafts, Inc. Employee Stock Ownership Plan, as amended from time to time. 2.2 Gender and Number Except when otherwise indicated by the context, any masculine terminology when used in the Plan shall also include the feminine gender and the neuter gender, and the definition of any term in the singular shall also include the plural. 2.3 Severability. In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted, and the Committee shall have the privilege and opportunity to correct and remedy such questions of illegality or invalidity by amendment as provided in the Plan. 2.4 Applicable Law. To the extent not preempted by Federal law, this Plan shall be governed and construed in accordance with the laws of the State of Texas. 2.5 Plan Not an Employment Contract. This Plan is not an employment contract. It does not give to any Participant the right to continued employment by the Company, and all Participants remain subject to change of salary, transfer, change of job, discipline, layoff, discharge, or any other change of employment status. ARTICLE III. PARTICIPATION 3.1 Participation. In order to become a Participant in this Plan, an employee must be selected by the Committee to participate and must meet each of the following additional requirements: (i) be in the active employment of the Company or any of its subsidiaries or affiliates on or after January 1, 1993, (ii) have been eligible to participate in, and be an Active Participant, as defined in the Qualified Plan, under the Qualified Plan, and (iii) the employee's Matching Allocation under the Qualified Plan is subject to reduction because of application of the limits of Sections 401(a)(17), 401(k)(3), 401(m), 402(g) or 415 of the Code. The Committee shall limit participation in the Plan to a select group of the Company's management or highly compensated employees meeting the above requirements. Participants shall be notified in writing by the Committee of their participation in the Plan. ARTICLE IV. BENEFIT AND PAYMENT 4.1 Account. An account shall be maintained by the Company for each Participant (the Participant's Account") whose Matching Allocation under the Qualified Plan for the Plan year in question is limited by reason of Code Sections 401(a)(17), 401(k)(3), 401(m), 402(g) or 415. 4.2 Allocable Share. For each Plan Year beginning on or after January 1, 1993, a Participant's Allocable Share under this Plan shall be the excess of (i) the aggregate Matching Allocations, expressed in shares of Company Stock, which would have been received by the Participant under the Qualified Plan as of all Qualified Plan allocation dates falling within the Plan Year in question if Qualified Plan allocations were calculated without applying the limitations of Code Sections 401(a) (17), 401(k)(3), 401(m), 402(g) or 415 to such Participant over (ii) the actual aggregate Matching Allocation, expressed in shares of Company Stock, credited to the Participant's accounts in the Qualified Plan as of all Qualified Plan allocation dates within such Plan Year. In calculating the hypothetical unlimited Matching Allocation under clause (i) of the preceding sentence, the statutory limitations in effect for any portion of the Plan Year shall be pro-rated in proportion to the number of months during the Plan Year such limitation is in effect, and added to the similarly pro-rated limitation (s) for each other portion of the Plan Year; and the average cost of all shares actually allocated under the Qualified Plan as of any date within this Plan's Plan Year shall be used to determine the number of shares that would have been allocated under the Qualified Plan had the limitations not applied. 4.3 Account Adjustments. Each Participant shall have his Account credited with the number of shares of "Phantom" stock equal to the number of shares of Company Stock in Participant's Allocable Share. A Participant's Account shall be credited, effective as of the payment date of any cash dividend, with the amount of any "Phantom Stock" cash dividends which would have been received, and the amount of any cash dividends shall be converted immediately into shares of Company stock based upon the average of the high and low trades of the Company Stock as published in a national newspaper ("market price") for the date the cash dividend is paid. Participant's Account shall be adjusted for any stock splits, stock dividends or similar transactions so as to produce the same number of shares of stock as the holder of an equal number of shares of Company Stock at the date of record would have following such transactions. The crediting of shares of Company Stock to a Participants Account is merely a bookkeeping entry for purposes of determining the Participant's benefits under the Plan, and does not convey any rights or interest in Company Stock to a Participant. 4.4 Vesting. A Participant's Account hereunder shall vest immediately. 4.5 Distribution. A Participant will be entitled to a distribution of Company Stock equal to the number of shares of "Phantom Stock" allocated to Participant's Account in the Plan upon termination of employment with the Company for any reason; however, no distribution shall occur prior to termination of employment with the Company and all of its subsidiaries and affiliates. Distribution shall commence as soon as administratively practical following the date the Participant is first eligible to receive a distribution from the Qualified Plan. In the event the Participant dies before the distribution is made, distribution shall be made as soon as administratively practical to his Beneficiary, or if there is no Beneficiary, to his estate. ARTICLE V. MISCELLANEOUS PROVISIONS 5.1 Funding. This Plan is intended to be an unfunded plan within the meaning of ERISA and the Code. All benefits under this Plan shall be paid in company stock from the general assets of the Company or such other funding vehicle as the Board shall provide; provided, however, that all assets paid into any funding vehicle hereunder shall at all times prior to payment to a Participant or Beneficiary remain subject to the claims of general unsecured creditors of the Company. The benefits allocated to the Company Accounts of Participants under the Plan shall be reflected on the accounting records of the Company, but absent action by either the Board or Committee shall not be construed to create, or require the creation of, a trust, custodial or escrow account, or other fund of any kind. No Participant or any other person shall have any right, title, or interest whatever in or to, or any preferred claim in or to, any investment reserves, accounts, or funds that the Company may purchase, establish, or accumulate to aid in providing the payments described in this Plan. No Participant shall have any voting rights or any other rights of a stockholder with respect to shares of stock credited to his Account. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or a fiduciary relationship of any kind between the Company and a Participant or any other person. Neither a Participant nor a Beneficiary shall acquire any interest in any assets of the Company or in any investment reserves, accounts, or funds that the Company may purchase, establish or accumulate for the purposes of paying benefits hereunder. 5.2 Tax Withholding. The Company may withhold or cause to be withheld from or with respect to any benefit hereunder any federal, state, or local taxes required by law to be withheld with respect to such benefit and such sum as the Company may reasonably estimate as necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such benefit. In the event any tax is required to be withheld prior to actual payment of benefits hereunder, the Company may withhold such tax from the Participant's other cash remuneration. 5.3 Compensation. No benefit accrued or payable hereunder shall be deemed compensation to the Participant for the purposes of computing benefits to which such Participant may be entitled under the Qualified Plan or any other benefit plan or arrangement of the Company for the benefit of its employees; provided, however, that in the event of a conflict with this Plan, the terms of the Qualified Plan or such other retirement plan or arrangement shall control. 5.4 Nontransferability. A Participant or his Beneficiary shall have no rights by way of anticipation or otherwise to assign or otherwise dispose of any interest under this Plan, nor shall rights be assigned or transferred by operation of law. ARTICLE VI. ADMINISTRATION 6.1 Administration. The Company shall be the "Plan Administrator." The Plan Administrator may resign or may be removed and a successor appointed by the Board at any time. The Board may appoint an administrative committee (the "Committee") to handle the day-to-day administration of the Plan, and the Committee shall have the authority of the Plan Administrator to the extent the Plan Administrator has delegated its authority to the Committee. Members of the Committee may resign with 30 days' written notice to the Board or may be removed by the Board at any time, whereupon a successor Committee member may be appointed by the Board. A majority of the members of the Committee shall constitute a quorum and the acts of a majority of the members present, or acts approved in writing by a majority of the members without a meeting, shall be the acts of the Committee. The Committee shall have that authority which is expressly stated in this Plan as being vested in the Committee and shall have the discretionary authority to make administrative rules, to construe and interpret the Plan, to reconcile any inconsistencies, correct any errors and supply any omissions in the Plan, to decide all questions arising under the Plan, to establish a claims procedure and to take such other action as may be appropriate to carry out the purposes of the Plan. No Participant in this Plan may be a member of the Committee. 6.2 Finality of Determination. Determinations of the Plan Administrator or Committee as to any disputed questions arising under this Plan, including questions of construction and interpretation, shall be final, binding, and conclusive upon all persons. Determinations of the Board as to eligibility and the vehicle, if any, to be used to fund benefits shall be final, binding and conclusive upon all persons. 6.3 Expenses. The expenses of administering the Plan shall be borne by the Company. 6.4 Indemnification and Exculpation. In the event and to the extent not insured against under any contract of insurance with an insurance company, the Company shall indemnify and hold harmless each "Indemnified Person," as defined below, against any and all claims, demands, suits, proceedings, losses, damages, interest, penalties, expenses (specifically including, but not limited to counsel fees to the extent approved by the Board of Directors of the Company or otherwise provided by law, court costs and other reasonable expenses of litigation), and liability of every kind, including amounts paid in settlement with the approval of the Board of Directors, arising from any action or cause of action related to the Indemnified Person's act or acts or failure to act in connection with this Plan. Such indemnity shall apply regardless of whether such claims, demands, suits, proceedings, losses, damages, interest, penalties, expenses, and liability arise in whole or in part from the negligence or other fault of the Indemnified Person, except when the same is judicially determined to be due to gross negligence, fraud, recklessness, willful or intentional misconduct of such Indemnified Person. "Indemnified Person" shall mean each member of the Board, each member of the Committee and each other employee of the Company who is allocated administrative or other responsibility hereunder. 6.5 Payment of Attorney's Fees. In the event a Participant or Beneficiary is denied benefits under this Plan and brings a successful legal action resulting in the award of such benefits to such Participant or Beneficiary, the Company shall reimburse the Participant or Beneficiary for the costs and expenses he or she has incurred in connection with such legal action, including reasonable attorney's fees. ARTICLE VII. MERGER, AMENDMENT, AND TERMINATION 7.1 Merger, Consolidation, or Acquisition. In the event of a merger, consolidation, or acquisition where the Company is not the surviving corporation, this Plan shall terminate but all amounts credited to participant Accounts prior to Plan termination shall continue to be an obligation of the successor acquiring corporation and the provisions of the Plan shall be binding on such successor for all amounts credited to Participant Accounts prior to Plan termination. 7.2 Amendment and Termination. The Company may amend, modify, or terminate the Plan at any time, expressly including the making of retroactive amendments; provided, that no such amendment or termination shall deprive a Participant or Beneficiary of any benefits which have previously accrued hereunder. 7.3 Adoption by Affiliates. Any subsidiary or affiliate of the Company that has adopted the Qualified Plan for the benefit of its employees may adopt this Plan for the benefit of its eligible employees, subject to the approval of the Company's Board. The Company, however, reserves the exclusive right to select the employees eligible to participate in the Plan, to administer the Plan, to make all decisions regarding funding the Plan, and to amend or terminate the Plan. In the event a subsidiary of affiliate adopts the Plan, it shall be solely responsible for payment of any benefits due to its employees hereunder and any related taxes, and for its pro rata portion of any administrative expenses or other payments hereunder. IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of this ---- day of June, 1995. TANDYCRAFTS, INC. By: -------------------- Michael J. Walsh EX-10.11 5 EXHIBIT 10.11 THIRD AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT ------------------------------ This Third Amendment to Revolving Credit and Term Loan Agreement ("Third Amendment") is made by and among TANDYCRAFTS, INC., a Delaware corporation ("Company"), CASUAL CONCEPTS, INC., a Texas corporation, THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation, SAV-ON, INC., a Texas corporation, NOCONA BELT COMPANY, a Texas corporation, J-MAR ASSOCIATES, INC., a Texas corporation, DAVID JAMES MANUFACTURING, INC., a Texas corporation, BRAND NAME APPAREL, INC., a Texas corporation, ART IMAGE, INC., a California corporation, PLC LEATHER COMPANY, a Nevada corporation, TANDYARTS, INC., a Nevada corporation, COLLEGE FLAGS AND MANUFACTURING, INC., a South Carolina corporation, LORD'S VINEYARD, INC., a Colorado corporation (hereinafter collectively referred to as the "Guarantors"), and FIRST INTERSTATE BANK OF TEXAS, N.A., THE DAIWA BANK, LTD., and NBD BANK, N.A. (collectively, the "Banks") and FIRST INTERSTATE BANK OF TEXAS, N. A., as agent for the Banks ("Agent"); and WHEREAS, the Company, certain of Guarantors and Agent entered into that certain Revolving Credit and Term Loan Agreement dated September 29, 1993 (the "Loan Agreement"); and WHEREAS, the Company, certain of Guarantors, Banks and Agent entered into that certain First Amendment to Revolving Credit and Term Loan Agreement dated December 3, 1993; and WHEREAS, the Company, the Guarantors, Banks and Agent entered into that certain Second Amendment To Revolving Credit and Term Loan Agreement dated September 26, 1994; and WHEREAS, the Company, Guarantors, Banks and Agent desire to amend the Loan Agreement in certain respects; and WHEREAS, capitalized terms used herein shall have the meaning assigned to them in the Loan Agreement unless the context otherwise requires or provides. NOW, THEREFORE, it is agreed by and among the Company, Guarantors, Banks and Agent as follows: 1. Section 9.02 of the Loan Agreement is amended to read in its entirety as follows: 9.02. Indebtedness To Consolidated Tangible Net Worth. Permit the ratio of the sum of its Consolidated Indebtedness to its Consolidated Tangible Net Worth to be greater than 2.75 to 1.0 on December 31,1994 or to be greater than 2.5 to 1.0 on or after March 31, 1995. 2. By their execution hereof, each of the Guarantors ratify and confirm the terms of the Guaranty Agreement dated August 17, 1994, agree that the Guaranty Agreement shall remain in full force and effect and unconditionally agree that the Guaranty Agreement is enforceable against each of them in accordance with its terms. 3. Except as amended by the First Amendment, the Second Amendment and this Third Amendment, the Loan Agreement is ratified and confirmed and shall remain in full force and effect. 4. This Third Amendment shall be governed by and construed in accordance with the laws of the State of Texas. 5. Company agrees to pay all expenses incurred by Agent and Banks in connection with the negotiation and preparation of this Third Amendment, including reasonable attorney's fees. 6. This Third Amendment may be executed in any number of multiple counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. 7. Banks, Company, and Guarantors agree to be bound by the current Arbitration Program of Agent which is incorporated by reference herein and is acknowledged as received by the parties pursuant to which any and all disputes shall be resolved by mandatory binding arbitration upon the request of any party. 8. This Third Amendment shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 9. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Executed to be effective as of December 31, 1994. TANDYCRAFTS, INC., a Delaware corporation By: /s/ Jerry L. Roy ---------------------------------- Jerry L. Roy, President COMPANY CASUAL CONCEPTS, INC., a Texas corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President SAV-ON, INC., a Texas corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President NOCONA BELT COMPANY, a Texas corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President J-MAR ASSOCIATES, INC., a Texas corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President DAVID JAMES MANUFACTURING, INC., a Texas corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President BRAND NAME APPAREL, INC., a Texas corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President ART IMAGE, INC., a California corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President PLC LEATHER COMPANY, a Nevada corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President TANDYARTS, INC., a Nevada corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President COLLEGE FLAGS AND MANUFACTURING, INC., a South Carolina corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President LORD'S VINEYARD, INC., a Colorado corporation By: /s/ Michael J. Walsh ---------------------------------- Michael J. Walsh, Vice President GUARANTORS FIRST INTERSTATE BANK OF TEXAS, N.A. By: /s/ Steve Wood ---------------------------------- Steve Wood, Senior Vice President By: /s/Todd Robichaux ---------------------------------- Todd Robichaux, Vice President THE DAIWA BANK, LTD. By: /s/ James T. Wang ---------------------------------- James T. Wang, Vice President By: /s/ Kirk L. Stites ---------------------------------- Kirk L. Stites, Vice President NBD BANK, N.A. By: /s/ James D. Heinz ---------------------------------- James D. Heinz, Vice President BANKS EX-10.12 6 EXHIBIT 10.12 FOURTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT ------------------------------ This Fourth Amendment to Revolving Credit and Term Loan Agreement ("Fourth Amendment") is made by and among TANDYCRAFTS, INC., a Delaware corporation ("Company"), CASUAL CONCEPTS, INC., a Texas corporation, THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation, SAV-ON, INC., a Texas corporation, NOCONA BELT COMPANY, a Texas corporation, DAVID JAMES MANUFACTURING, INC., a Texas corporation, BRAND NAME APPAREL, INC., a Texas corporation, ART IMAGE, INC., a California corporation, PLC LEATHER COMPANY, a Nevada corporation, TANDYARTS, INC., a Nevada corporation, and COLLEGE FLAGS AND MANUFACTURING, INC., a South Carolina corporation, (hereinafter collectively referred to as the "Guarantors"), and FIRST INTERSTATE BANK OF TEXAS, N.A., THE DAIWA BANK, LTD. and NBD BANK (collectively, the "Banks") and FIRST INTERSTATE BANK OF TEXAS, N. A., as agent for the Banks ("Agent"); and WHEREAS, the Company, certain of Guarantors and Agent entered into that certain Revolving Credit and Term Loan Agreement dated September 29, 1993 (the "Loan Agreement"); and WHEREAS, the Company, certain of Guarantors, Banks and Agent entered into that certain First Amendment to Revolving Credit and Term Loan Agreement dated December 3, 1993; and WHEREAS, the Company, the Guarantors, Banks and Agent entered into that certain Second Amendment To Revolving Credit and Term Loan Agreement dated September 26, 1994; and WHEREAS, the Company, Guarantors, Banks and Agent entered into that certain Third Amendment to Revolving Credit and Term Loan Agreement dated December 31, 1994; and WHEREAS, the Company, Guarantors, Banks and Agent desire to amend the Loan Agreement in certain respects; and WHEREAS, capitalized terms used herein shall have the meaning assigned to them in the Loan Agreement unless the context otherwise requires or provides. NOW, THEREFORE, it is agreed by and among the Company, Guarantors, Banks and Agent as follows: 1. New Section 1.09A and Section 1.74A are added to the Loan Agreement which shall read in their entirety as follows: 1.09A "Capital Expenditures" shall mean any expenditure by a Person for an asset which will be used in a year or years subsequent to the year in which the expenditure is made and which asset is properly classified in the relevant financial statements of such Person as property, equipment, improvements, fixed assets or a similar type of capitalized assets in accordance with Generally Accepted Accounting Principles. * * * 1.74A Short Term Credit Agreement shall mean that certain Revolving Credit Agreement dated as of July 6, 1995 by and among Company, the Guarantors, First Interstate Bank of Texas, N.A. and NBD Bank, as the same may be amended, modified, supplemented or restated. 2. Section 1.16 and Section 1.59 of the Loan Agreement are amended to read in their entirety as follows: 1.16. "Consolidated Current Liabilities" shall mean without duplication, as of any date, the sum of (a) current liabilities which would be reflected on a Consolidated balance sheet of the Company and its Subsidiaries prepared as of such date in accordance with GAAP, (b) all liabilities and obligations of Company to Banks under the Loan Documents, and (c) all liabilities and obligations of Company under the Short Term Credit Agreement. * * * 1.59. "Non-Cash Charges" shall mean the sum of depreciation and amortization (including amortization of good will) plus the net increase in deferred tax liability, if any, less the net decrease in deferred tax liability, if any, plus contributions of common stock of Company by Company to the Tandycrafts, Inc. Employee Stock Ownership Plan during such period, all as reflected in the Consolidated financial statements of Company and its Subsidiaries in accordance with GAAP in an amount not to exceed the aggregate amount deducted by Company for such period for Federal income tax purposes with respect to Company's contribution to the Tandycrafts, Inc. Employee Stock Ownership Plan. 3. Section 2.03 of the Loan Agreement is amended to read in its entirety as follows: 2.03. Interest Rate. The unpaid principal of each Floating Prime Advance shall bear interest from the date of advance until paid at a rate per annum which shall from day to day be equal to the lesser of: (a) the Floating Prime Rate in effect from day to day or (b) the Maximum Rate. The unpaid principal of each Eurodollar Advance shall bear interest from the date of advance until paid at a rate per annum which shall be equal to the lesser of (a) the sum of the Adjusted Interbank Rate for the applicable Interest Period, plus five-eighths percent (0.625%) or (b) the Maximum Rate if as of the end of the most recent fiscal quarter the ratio of the sum of (i) Consolidated Net Income and (ii) Non-Cash Charges for the preceding four fiscal quarters to Senior Funded Debt as of the end of the most recent fiscal quarter is equal to or greater than .40 to 1.0. The unpaid principal of each Eurodollar Advance shall bear interest from the date of advance until paid at a rate per annum which shall be equal to the lesser of (a) the sum of the Adjusted Interbank Rate for the applicable Interest Period, plus three-quarters percent (0.75%) or (b) the Maximum Rate if as of the end of the most recent fiscal quarter the ratio of the sum of (i) Consolidated Net Income and (ii) Non-Cash Charges for the preceding four fiscal quarters to Senior Funded Debt as of the end of the most recent fiscal quarter is less than .40 to 1.0 but equal to or greater than .30 to 1.0. The unpaid principal of each Eurodollar Advance shall bear interest from the date of advance until paid at a rate per annum which shall be equal to the lesser of (a) the sum of the Adjusted Interbank Rate for the applicable Interest Period, plus seven-eighths percent (0.875%) or (b) the Maximum Rate if as of the end of the most recent fiscal quarter the ratio of the sum of (i) Consolidated Net Income and (ii) Non-Cash Charges for the preceding four fiscal quarters to Senior Funded Debt as of the end of the most recent fiscal quarter is less than .30 to 1.0 but equal to or greater than .20 to 1.0. The unpaid principal of each Eurodollar Advance shall bear interest at the lesser of (a) the Floating Prime Rate in effect from day to day plus five percent (5%) or (b) the Maximum Rate if as of the end of the most recent fiscal quarter the ratio of the sum of (i) Consolidated Net Income and (ii) Non-Cash Charges for the preceding four fiscal quarters to Senior Funded Debt as of the end of the most recent fiscal quarter is less than .20 to 1.0. The unpaid principal balance of the Swing Line Note shall bear interest at the lesser of (a) the Floating Prime Rate in effect from day to day or (b) the Maximum Rate. All past due principal of, and to the extent permitted by applicable law, interest on the Notes shall bear interest at the Past Due Rate. If converted to Term Loans pursuant to Section 3.01 hereof, the converted principal amount of the Notes shall continue to bear interest as provided in this Section 2.03. Notwithstanding the foregoing, the unpaid principal balance of the Notes shall bear interest as provided in Section 4.05(c) hereof, upon the occurrence of the circumstances described in such section. 4. Section 9.07 of the Loan Agreement is amended to read in its entirety as follows: 9.07. Limitations on Acquisitions. Acquire or commit or agree to acquire the stock or assets of any Person prior to the termination of the Short Term Credit Agreement. Section 9.14 of the Loan Agreement is amended to read in its entirety as follows: 9.14 Limitation on Additional Indebtedness. Incur or assume or permit any subsidiary to incur or assume any Indebtedness for borrowed money, except for (i) the Indebtedness evidenced by the Notes and the indebtedness under the Short Term Credit Agreement, (ii) Consolidated indebtedness (excluding the Indebtedness evidenced by the Notes and the indebtedness under the Short Term Credit Agreement) not to exceed five million dollars ($5,000,000) in the aggregate at any one time, and (iii) trade indebtedness incurred in the ordinary course of business. 6. A new Section 9.18 is added to the Loan Agreement which shall read in its entirety as follows: 9.18 Capital Expenditures. Permit the aggregate amount of Capital Expenditures to exceed six million dollars ($6,000,000) during any fiscal year beginning with the fiscal year ending June 30, 1996. 7. A new Section 10.01(h) is added to the Loan Agreement which shall read in its entirety as follows: (h) The occurrence of an event of default under the terms of the Short Term Credit Agreement. 8. Company and Guarantors warrant and represent to Banks that no Event of Default exists. By the execution hereof, each of the Guarantors ratify and confirm the terms of the Guaranty Agreement dated August 17, 1994, agree that the Guaranty Agreement shall remain in full force and effect and unconditionally agree that the Guaranty Agreement is enforceable against each of them in accordance with its terms. 9. Except as amended by the First Amendment, the Second Amendment, the Third Amendment and this Fourth Amendment, the Loan Agreement is ratified and confirmed and shall remain in full force and effect. 10. This Fourth Amendment shall be governed by and construed in accordance with the laws of the State of Texas. 11. Company agrees to pay all expenses incurred by Agent and Banks in connection with the negotiation and preparation of this Fourth Amendment, including reasonable attorney's fees. 12. This Fourth Amendment may be executed in any number of multiple counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. 13. Banks, Company, and Guarantors agree to be bound by the current Arbitration Program of Agent which is incorporated by reference herein and is acknowledged as received by the parties pursuant to which any and all disputes shall be resolved by mandatory binding arbitration upon the request of any party. 14. This Fourth Amendment shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 15. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Executed to be effective as of July 6, 1995. TANDYCRAFTS, INC., a Delaware corporation By: /s/ Jerry L. Roy ----------------------------------- Jerry L. Roy, President COMPANY CASUAL CONCEPTS, INC., a Texas corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President SAV-ON, INC., a Texas corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President NOCONA BELT COMPANY, a Texas corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President J-MAR ASSOCIATES, INC., a Texas corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President DAVID JAMES MANUFACTURING, INC., a Texas corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President BRAND NAME APPAREL, INC., a Texas corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President ART IMAGE, INC., a California corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President PLC LEATHER COMPANY, a Nevada corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President TANDYARTS, INC., a Nevada corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President COLLEGE FLAGS AND MANUFACTURING, INC., a South Carolina corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President LORD'S VINEYARD, INC., a Colorado corporation By: /s/ Michael J. Walsh ----------------------------------- Michael J. Walsh, Vice President GUARANTORS FIRST INTERSTATE BANK OF TEXAS, N.A. By: /s/ Steve Wood ----------------------------------- Steve Wood, Senior Vice President By: /s/ Todd Robichaux ----------------------------------- Todd Robichaux, Vice President THE DAIWA BANK, LTD. By: /s/ James T. Wang ----------------------------------- James T. Wang, Vice President By: /s/ Kirk L. Stites ----------------------------------- Kirk L. Stites, Vice President NBD BANK, N.A. By: /s/ James D. Heinz ----------------------------------- James D. Heinz, Vice President BANKS EX-21 7 EXHIBIT 21 TANDYCRAFTS, INC. Significant Subsidiaries of Tandycrafts, Inc. as of June 30, 1994 Jurisdiction of Subsidiary's Legal Name Doing Business As Incorporation ----------------------- ----------------- ------------- Casual Concepts, Inc. Cargo Furniture & Accents Texas, U.S.A. Development Association, Inc. Joshua's Christian Stores Texas, U.S.A. Sav-On, Inc. Sav-On Discount Office Supplies Texas, U.S.A. Nocona Belt Company Texas, U.S.A. David James Manufacturing, Inc. David James Fashions Texas, U.S.A. Brand Name Apparel, Inc. The Leather Factory Texas, U.S.A. TAC Holdings, Inc. Delaware, U.S.A. PLC Leather Company Prestige Leather Creations Nevada, U.S.A. TandyArts, Inc. Impulse Designs Nevada, U.S.A. College Flags and Manufacturing Company, Inc. College Flags/TAG Express South Carolina, U.S.A. Hermitage Fine Arts, Inc. Hermitage Fine Arts Nevada, U.S.A. Each of the corporations listed is a direct subsidiary of Tandycrafts, Inc., which owns 100% of the voting securities of each, except for TAC Holdings, Inc. which is 100% owned by Tandycrafts, Inc. and its various subsidiaries, and Hermitage Fine Arts, Inc., which is 100% owned by TandyArts, Inc. Each of the above subsidiaries is included in the Tandycrafts, Inc. Consolidated Financial Statements for fiscal 1994. EX-23 8 EXHIBIT 23 TANDYCRAFTS, INC. Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No's. 33-85550, 33-85548 and 33-57525) and to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-88290) of Tandycrafts, Inc. of our report dated August 8, 1995, appearing on page 16 of this Form 10-K. /s/ Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Fort Worth, Texas September 27, 1995 EX-27 9
5 This schedule contains summary financial information extracted from Tandycrafts, Inc.'s June 30, 1995 Form 10-K and is qualified in its entirety by reference to such Form 10-K filing. 0000096294 TANDYCRAFTS, INC. 1,000 U.S. DOLLARS YEAR JUN-30-1995 JUL-01-1994 JUN-30-1995 1 1,807 0 32,045 605 65,742 101,980 48,658 19,951 178,803 27,113 0 18,528 0 0 72,133 178,803 256,523 256,523 155,644 244,663 0 0 3,900 8,027 2,810 5,217 0 0 0 5,217 .46 0.00
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