-----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, ITB2qDQjyzY9lF5sIEoO9RZQYkpsvskbOUD9g1wiMAjhsqGFtYLqFf6hPBZcTEqC /b6YdufqK2wxTyKz7+/sGQ== 0000096294-98-000004.txt : 19980218 0000096294-98-000004.hdr.sgml : 19980218 ACCESSION NUMBER: 0000096294-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANDYCRAFTS INC CENTRAL INDEX KEY: 0000096294 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 751475224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07258 FILM NUMBER: 98543287 BUSINESS ADDRESS: STREET 1: 1400 EVERMAN PKWY CITY: FORT WORTH STATE: TX ZIP: 76140 BUSINESS PHONE: 8175519600 MAIL ADDRESS: STREET 1: 1400 EVERMAN PKWY CITY: FORT WORTH STATE: TX ZIP: 76140 10-Q 1 SECOND QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended December 31, 1997 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ______________ to ________________ Commission File Number 1-7258 TANDYCRAFTS, INC. (Exact name of registrant as specified in its charter) Delaware 75-1475224 - ------------------------ ------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) 1400 Everman Parkway, Fort Worth, Texas 76140 (Address of principal executive offices) (Zip Code) (817) 551-9600 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___. ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Shares outstanding as of January 31, 1997 - ----------------------------- ----------------------------------------- Common Stock, $1,00 par value 12,687,896 TANDYCRAFTS, INC. Form 10-Q Quarter Ended December 31, 1997 TABLE OF CONTENTS PART 1 - FINANCIAL INFORMATION Item Page No. - ---- ------- 1. Condensed Consolidated Financial Statements.................. 3-7 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 8-13 PART II - OTHER INFORMATION 4. Submission of Matters to a Vote of Security Holders...................................................... 14 6. Exhibits and Reports on Form 8-K............................. 14 Signatures................................................... 15 PART I ------ Item 1. Financial Statements -------------------- TANDYCRAFTS, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended December 31, December 31, ----------------------- ------------------------ 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Net sales $ 73,237 $ 73,246 $ 128,596 $ 131,016 ---------- ---------- ---------- ---------- Operating costs and expenses: Cost of goods sold 48,702 46,732 84,536 82,420 Selling, general and administration 17,665 20,775 33,597 39,437 Depreciation and amortization 1,259 1,391 2,529 2,763 ---------- ---------- ---------- ---------- Total operating costs and expenses 67,626 68,989 120,662 124,620 ---------- ---------- ---------- ---------- Operating income 5,611 4,348 7,934 6,396 Interest expense, net 911 833 1,773 1,655 ---------- ---------- ---------- ---------- Income before provision for income taxes 4,700 3,515 6,161 4,741 Provision for income taxes 1,644 1,230 2,156 1,659 ---------- ---------- ---------- ---------- Net income $ 3,056 $ 2,285 $ 4,005 $ 3,082 ========== ========== ========== ========== Net income per share - basic and diluted $ 0.24 $ 0.19 $ 0.32 $ 0.25 ========== ========== ========== ========== Weighted average common shares 12,685 12,346 12,661 12,272 ========== ========== ========== ==========
TANDYCRAFTS, INC. Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited) December 31, June 30, 1997 1997 ------------ ------------ ASSETS - ------ Current assets: Cash $ 491 $ 1,005 Trade accounts receivable, net of allowance for doubtful accounts of $1,808 and $1,680, respectively 38,954 32,614 Inventories 53,537 49,671 Other current assets 6,410 6,727 ------------ ------------ Total current assets 99,392 90,017 ------------ ------------ Property and equipment, at cost 51,277 49,608 Accumulated depreciation (25,629) (24,103) ------------ ------------ Property and equipment, net 25,648 25,505 ------------ ------------ Other assets 722 768 Goodwill 39,633 40,239 ------------ ------------ $ 165,395 $ 156,529 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable 14,407 13,196 Accrued liabilities and other 13,747 15,765 ------------ ------------ Total current liabilities 28,154 28,961 ------------ ------------ Long-term debt 46,060 40,840 Deferred income taxes 2,454 2,454 Stockholders' equity: Common stock, $1 par value, 50,000,000 shares authorized, 18,527,988 shares issued 18,528 18,528 Additional paid-in capital 20,523 20,432 Retained earnings 71,462 67,457 Cost of stock in treasury, 5,836,168 shares and 5,930,336 shares, respectively (21,786) (22,143) ------------ ------------ Total stockholders' equity 88,727 84,274 ------------ ------------ $ 165,395 $ 156,529 ============ ============ TANDYCRAFTS, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended December 31, -------------------------- 1997 1996 ---------- ---------- Net cash flows from operating activities $ (4,116) $ 6,714 ---------- ---------- Cash flows from investing activities: Additions to property and equipment, net (2,066) (1,626) ---------- ---------- Net cash used for investing activities (2,066) (1,626) ---------- ---------- Cash flows from financing activities: Sales of treasury stock to employee benefit program, net 448 1,885 Borrowings (payments) under bank credit facility, net 5,220 (6,260) ---------- ---------- Net cash provided (used) by financing activities 5,668 (4,375) ---------- ---------- Increase (decrease) in cash (514) 713 Balance, beginning of period 1,005 1,512 ---------- ---------- Balance, end of period $ 491 $ 2,225 ========== ========== TANDYCRAFTS, INC. Condensed Consolidated Statement of Stockholders' Equity (Dollars in thousands) (Unaudited) Additional Common paid-in Retained Treasury stock capital earnings stock Total ---------- ---------- ---------- ---------- ---------- Balance, June 30, 1997 $ 18,528 $ 20,432 $ 67,457 $ (22,143) $ 84,274 Sale of 94,168 shares of treasury stock to employee benefit program, net - 91 - 357 448 Net income for six months ended December 31, 1997 - - 4,005 - 4,005 ---------- ---------- ---------- --------- ---------- Balance, December 31, 1997 $ 18,528 $ 20,523 $ 71,462 $ (21,786) $ 88,727 ========== ========== ========== ========= ==========
TANDYCRAFTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the Company's financial position as of December 31, 1997 and June 30, 1996, and the results of operations and cash flows for the six-month periods ended December 31, 1997 and December 31, 1996. The results of operations for the three and six-month periods ended December 31, 1997 and 1996 are not necessarily indicative of the results to be expected for the full fiscal year. The consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the Company's 1997 Annual Report to Stockholders. NOTE 2 - INVENTORIES The components of inventories at December 31, 1997 consisted of the following (in thousands): Merchandise held for sale $ 41,105 Raw materials and work-in-process 12,432 --------- $ 53,537 ========= NOTE 3 - EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards No. 128 "Earnings per Share", ("FAS 128"), effective for the quarter ended December 31, 1997. In accordance with FAS 128, basic earnings per share is computed by dividing income available to common shareholders by the weight-average common shares outstanding. Since the Company has no outstanding preferred stock, income available to shareholders is equal to the Company's net income. Diluted earnings per share is computed by dividing the income available to shareholders by the weighted-average common share and common share equivalents outstanding during the period. For the three and six-month periods ending December 31, 1997 and 1996, the number of weighted average shares and common stock equivalents is as follows (in thousands): Three Months Ended Six Months Ended December 31, December 31, ------------------ ------------------ 1997 1996 1997 1996 ------- ------- ------- ------- Weighted average shares - basic 12,685 12,346 12,661 12,272 Common stock equivalents - - - - ------- ------- ------- ------- Total weighted average common and common equivalent shares - diluted 12,685 12,346 12,661 12,272 ======= ======= ======= ======= Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------ Operations GENERAL Tandycrafts, Inc. (the "Company") operates in two primary industry segments, specialty retail and specialty manufacturing. The specialty retail group consists of three distinct retail concepts: Tandy Leather Company, which sells leathercraft and related products through 152 stores located in 44 states; Joshua's Christian Stores, which sells inspirational books, music and gifts through a chain of 61 stores located in ten states and Sav-On Office Supplies, which sells office supplies and related products through a chain of 41 stores located in eleven states. The specialty manufacturing segment is comprised of two divisions: Pinnacle Art & Frame and Tandy Wholesale International ("TWI") division. Certain statements in this discussion, other filings with the Securities and Exchange Commission and other Company statements are not historical facts but are forward-looking statements. The words "believes," "expects," "estimates," "projects," "plans," "could," "may," "anticipates," or the negative thereof or other variations or similar terminology, or discussions of strategy or plans identify forward-looking statements. These forward-looking statements reflect the Company's reasonable judgments with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from forward-looking statements. These risks and uncertainties include, but are not limited to, the Company's ability to reduce costs through the consolidation of certain operations, customer's willingness, need, demand and financial ability to purchase the Company's products, new business opportunities, the successful development and introduction of new products and the successful development of new retail stores, the successful implementation of new information systems, relationships with key customers, relationships with professional sports leagues and other licensors, possibility of players' strikes in professional sports leagues, price fluctuations for commodities such as lumber, paper, leather and other raw materials, seasonality of the Company's operations, effectiveness of promotional activities, changing business strategy and intense competition in retail operations. Additional factors include economic conditions such as interest rate fluctuations, consumer debt levels, changing consumer demand and tastes, competitive products and pricing, availability of products, inventory risks due to shifts in market demand, regulatory and trade environment and other factors or risks. The following table presents selected financial data for each significant company or division comprising the Company's two primary industry segments for the three and six-month periods ended December 31, 1997 and 1996 (in thousands): Three Months Ended December 31, ---------------------------------------------- 1997 1996 % Increase (Decrease) ---------------------- --------------------- ---------------------- Operating Operating Operating Income Income Income Sales (Loss) Sales (Loss) Sales (Loss) --------- ---------- --------- --------- --------- ---------- Specialty Retail: Tandy Leather $ 10,828 $ 95 $ 11,573 $ 676 (6.4)% (85.9)% Sav-On Office Supplies 9,668 309 8,571 388 12.8 (20.4) Joshua's Christian Stores 11,159 1,025 11,330 230 (1.5) 345.7 --------- ---------- --------- --------- ------- -------- Specialty Retail 31,655 1,429 31,474 1,294 0.6 10.4 --------- ---------- --------- --------- ------- -------- Specialty Manufacturing: Pinnacle Art & Frame 31,975 4,739 27,295 4,353 17.1 8.9 TWI 9,607 685 9,241 (170) 4.0 502.9 --------- ---------- --------- --------- ------- -------- Specialty Manufacturing 41,582 5,424 36,536 4,183 13.8 29.7 --------- ---------- --------- --------- ------- -------- Divested operations - - 5,236 (125) (100.0) 100.0 --------- ---------- --------- --------- ------- -------- Total operations, excluding corporate $ 73,237 $ 6,853 $ 73,246 $ 5,352 (0.0)% 28.0% ========= ========== ========= ========= ======= ======== Six Months Ended December 31, ---------------------------------------------- 1997 1996 % Increase (Decrease) ---------------------- --------------------- ---------------------- Operating Operating Operating Income Income Income Sales (Loss) Sales (Loss) Sales (Loss) --------- ---------- --------- --------- --------- ---------- Specialty Retail: Tandy Leather $ 19,806 $ (62) $ 21,131 $ 346 (6.3)% (117.9)% Sav-On Office Supplies 20,267 912 18,026 950 12.4 (4.0) Joshua's Christian Stores 18,083 846 17,158 (517) 5.4 263.6 --------- ---------- --------- --------- ------- -------- Specialty Retail 58,156 1,696 56,315 779 3.3 117.7 --------- ---------- --------- --------- ------- -------- Specialty Manufacturing: Pinnacle Art & Frame 51,786 6,814 44,118 6,484 17.4 5.1 TWI 18,651 1,360 19,352 768 (3.6) 77.1 --------- ---------- --------- --------- ------- -------- Specialty Manufacturing 70,437 8,174 63,470 7,252 11.0 12.7 --------- ---------- --------- --------- ------- -------- Divested operations 3 - 11,231 (6) (100.0) 100.0 --------- ---------- --------- --------- ------- -------- Total operations, excluding corporate $ 128,596 $ 9,870 $ 131,016 $ 8,025 (1.8)% 23.0% ========= ========== ========= ========= ======= ========
RESULTS OF OPERATIONS Consolidated net sales were essentially flat for the quarter ended December 31, 1997 and decreased $2,420,000, or 1.8% for the six month period then ended as compared to the same periods of the prior year. Excluding divested operations, consolidated net sales increased $5,227,000, or 7.7%, and $8,808,000, or 7.4%, respectively, for the three and six-month periods ended December 31, 1997 compared to last year. Operating income increased $1,501,000, or 28.0%, and $1,845,000, or 23.0%, respectively, for the three and six-month periods ended December 31, 1997. Excluding divested operations, operating income increased $1,376,000, or 25.1%, and $1,839,000, or 22.9%, respectively, for the three and six-month periods ended December 31, 1997 compared to the same periods of the previous year. Discussions relative to each of the Company's industry segments are set forth below. SPECIALTY RETAIL Net sales for the specialty retail segment increased 0.6% for the quarter and 3.3% for the six months ended December 31, 1997 compared to the same periods last year. The specialty retail segment contributed 43.2% and 45.2% of consolidated net sales, excluding divested operations, for the three and six- month periods ended December 31, 1997, respectively, compared to 46.3% and 47.0%, respectively, for the same periods last year. Operating income for this segment increased $135,000, or 10.4%, and $917,000, or 117.7%, respectively, for the three and six-month periods ended December 31, 1997 compared to the same periods last year. Tandy Leather Retail Tandy Leather Company's net retail sales decreased 6.4% for the quarter and 6.3% for the six months ended December 31, 1997 compared to the same periods last year. The sales decrease is primarily a result of the closure of twenty unprofitable stores since December 31, 1996. Same-store sales at Tandy Leather for the three and six-month periods decreased 0.7% and 2.4%, respectively; however, Tandy Leather achieved same-stores sales increases in two of the last four months ending December 31, 1997. Operating income at Tandy Leather decreased $581,000, or 85.9%, and $408,000, or 117.9%, for the quarter and six months ended December 31, 1997, respectively. These decreases in operating income are the result of decreased sales combined with a decrease in gross margin. For the quarter, gross margin as a percent of sales decreased approximately 4.5 percentage points due to increased seasonal promotional discounts and a change in sale mix, with leather comprising a greater portion of sales relative to kits and other higher margin items. Selling, general and administrative ("SG&A") expenses as a percent of sales during the two periods remained flat, while SG&A dollars decreased $331,000 and $644,000, respectively, for the three and six month periods primarily due to the twenty closed stores resulting in decreased labor and advertising expenses. Management at Tandy Leather continues its efforts to focus on increasing customer traffic through various strategies including: improved merchandise presentation, improved logistics and sourcing, more focused advertising and targeted improvements in systems and technology to provide better operational control and support. In addition, Tandy Leather plans to continue to close unprofitable stores and exit markets that are not viable as leases expire and will attempt to recover lost sales from these exited markets through its mail order program. Sav-On Office Supplies Sav-On achieved total net sales increases of 12.8% and 12.4% for the quarter and six-month periods ended December 31, 1997, respectively, compared to the same periods last year. Same-store sales increased 6.7% and 8.0% for the quarter and the six-months ended December 31, 1997, respectively, over the comparable periods last year. Six new stores opened within the last eight months contributed sales of $568,000 and $929,000, respectively, for three and six- month periods ended December 31, 1997. The same-store sales increases are attributable to continued strong sales gains in the computer peripherals category stemming from the introduction of PC printers and fax machines in the prior year and strong gains in the furniture category. Sav-On's operating income decreased $79,000, or 20.4%, and $38,000, or 4.0%, respectively, for the three and six-month periods ended December 31, 1997 compared to the same periods last year. The decrease in operating income primarily reflects the impact of the six new stores which contributed operating losses of $193,000 and $426,000 for the two periods. Gross margin percentage decreased for the quarter and six-month periods reflecting a greater portion of total sales comprised of computer peripherals and furniture, which have lower margins relative to other merchandise categories. SG&A expenses increased $259,000 and $559,000 for the three and six-month periods due to the six new stores resulting in increased occupancy and advertising expenses. As a percent of sales, however, SG&A expenses decreased slightly for both periods. Joshua's Christian Stores Joshua's net sales for the quarter ended December 31, 1997 decreased 1.5% compared to the same quarter last year, reflecting the closure of eleven stores since December 31, 1996. Same-stores sales, however, increased 10.0%. Sales for the six-month period ended December 31, 1997 increased $925,000, or 5.4%, with same-store sales increases of 14.6%. The same-store sales increases for the two periods are attributable to more effective advertising, better merchandise assortment and better in-stock position on best-sellers and seasonal merchandise. Joshua's Christian Stores had operating income of $1,025,000 and $846,000, respectively, for the quarter and the six-month period ended December 31, 1997 compared to operating income of $230,000 and loss of $517,000, respectively, for the comparable periods last year. Gross profit as a percent of sales increased for both the three and six-month periods primarily due to a better merchandise assortment in the stores and less promotional discounting during the holiday season of 1997 compared to the prior year. SG&A expenses decreased $449,000 and $766,000 for the two periods as a result of the eleven closed stores and more effective expense control throughout the chain. SPECIALTY MANUFACTURING Net sales for the specialty manufacturing segment increased 13.8% and 11.0% for the three and six-month periods ended December 31, 1997, respectively, compared to the corresponding periods a year ago. The specialty manufacturing segment contributed 56.8% and 54.8% of consolidated net sales, excluding divested operations, for the three and six-month periods ended December 31, 1997, respectively, compared to 53.7% and 53.0%, respectively, for the same periods last year. Operating income for this segment increased $1,241,000, or 29.7%, and $922,000, or 12.7%, for the three and six-month periods ended December 31, 1997, respectively, compared to the same periods of last year. Pinnacle Art & Frame Net sales for Pinnacle Art & Frame increased $4,680,000, or 17.1%, and $7,668,000, or 17.4%, for the three and six-month periods ended December 31, 1997, respectively, compared to the same periods last year. Pinnacle achieved significant sales gains in both frames and framed art during the quarter reflecting the addition of new customers, as well as increased sales to existing customers. Operating income for Pinnacle Art & Frame increased $386,000, or 8.9%, and $330,000, or 5.1%, for the three and six-month periods ended December 31, 1997, respectively, compared to the corresponding periods last year. Gross margin dollars increased due to the increase in sales, however, gross margin as a percent of sales decreased for both periods ending December 31, 1997 due to increases in pine prices and labor inefficiencies resulting from overtime primarily at the Los Angeles facility. Management is currently investigating avenues to increase manufacturing capacity to allow for increased production without incurring the overtime expenses experienced during the quarter. Operating expenses increased due to costs associated with establishing a service program to service major customers. However, operating expenses as a percent of sales decreased to 8.9% this quarter compared to 9.6% last year. Tandy Wholesale International ("TWI") Net sales for the TWI division increased 4.0% for the quarter primarily due to increased sales of licensed products at Licensed Lifestyles and gift items at J-Mar. Licensed Lifestyles' sales increase was driven by the high demand for Major League Baseball playoff and World Series merchandise and by new NFL product offerings. J-Mar increased its sales level by revamping its name card product line and display towers and introducing a line of framed art products during the quarter ended December 31, 1997. Sales for the TWI division decreased 3.6% for the six-month period ended December 31, 1997 compared to the same period last year due to the discontinuance of an unprofitable line of business by Tandy Leather and to 1996 Olympic sales made by Licensed Lifestyles in the first quarter of fiscal 1997 which were not repeated in the current fiscal year. The TWI division had operating income of $685,000 and $1,360,000 for the three and six-month periods ended December 31, 1997, respectively, compared to an operating loss of $170,000 and income of $768,000 for the corresponding periods of last year. Licensed Lifestyles contributed the most significant portion of the increase through its increased sales levels, as well as more effective expense control and more efficient operations as a result of the consolidation and integration efforts undertaken last year. Operating expenses for this division decreased $657,000, or 20.0%, and $1,024,000, or 16.9%, for the three and six-month periods ending December 31, 1997 compared to the same periods last year. Selling, general and administrative expenses Consolidated selling, general and administrative (SG&A) expenses were 24.1% and 26.1%, as a percent of sales, for the three and six-month periods ended December 31, 1997, respectively, compared to 28.4% and 30.1% for the corresponding periods last year. In total dollars, SG&A expenses decreased $3,110,000, or 15.0%, and $5,840,000, or 14.8%, for the three and six-month periods ended December 31, 1997, respectively, compared to the corresponding periods last year. The decrease in expenses was primarily due to the elimination of expenses related to discontinued operations and to tighter expense controls established throughout the Company. Interest expense, net Interest expense increased $78,000, or 9.4%, and $118,000, or 7.1%, for the three and six-month periods ended December 31, 1997, respectively, compared to the corresponding periods of the prior year. The increase in interest expense was due to higher average interest rates during first six months of fiscal 1998 compared to the prior year. Depreciation and amortization Consolidated depreciation and amortization decreased $132,000, or 9.5%, and $234,000, or 8.5%, for the three and six-month periods ended December 31, 1997, respectively, compared to the corresponding periods last year. The decrease is due primarily to discontinued operations. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity have come from sales of treasury stock to the employee benefit program and borrowings under the Company's revolving credit facility. These funds have been used primarily for capital expenditures and to finance the growth in inventories and receivables to support increased sales. During the six-months ended December 31, 1997, cash decreased $514,000. Cash used by operating activities of $4,116,000 was primarily used to finance the growth in inventories and receivables, partially offset by cash provided by operating income. Cash used for investing activities of $2,066,000 resulted primarily from capital expenditures for property and equipment. Cash of approximately $5,668,000 was provided by financing activities, through borrowings under the Company's revolving credit facility and the sales of treasury stock to the employee benefit program. The Company has a $50 million revolving credit facility with a group of banks. The credit facility is a two-year revolving line of credit renewable annually. Effective September 30, 1997, the Company's revolving credit facility was renewed by its banks and the maturity was extended to October 31, 1999. Effective November 3, 1997, the Company entered into an Interest Rate Swap Agreement with its primary bank in which a $20,000,000 notional amount of floating rate debt was swapped for a fixed rate of 6.01%. The Swap Agreement has a three-year term and is being accounted for as a hedge by the Company. The Company currently estimates that its cash flow from operations will enable it to operate within the commitment amount on a continuing basis. Actual results may differ from this forward-looking projection, see risk factors herein. Cash of approximately $2,066,000 was used for capital expenditures during the six-months ended December 31, 1997. Planned capital expenditures for the remainder of fiscal 1998 approximate $2,500,000 and are primarily targeted for investments in Pinnacle Art & Frame. Management believes that the Company's current cash position, its cash flows from operations and available borrowing capacity will be sufficient to fund its planned operations and capital expenditures for the remainder of fiscal 1998. Actual results may differ from this forward-looking projection. Please refer to the discussion of risk factors contained herein. THE YEAR 2000 The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue and has developed an implementation plan to address the issues. These plans include modifying current software in some circumstances and converting to new software in others. The Company believes this implementation plan will not pose significant operational problems for the Company and believes that the costs of such plan will not materially impact the Company's results of operations or financial condition through the end of fiscal 1999. Actual results may differ from this forward-looking projection. Please refer to the risk factors discussion herein. CONTINGENCIES A former subsidiary of the Company, which was spun-off in 1978, filed for Chapter 11 protection under the federal bankruptcy code in January 1996. As part of the bankruptcy proceedings, the former subsidiary has rejected certain store leases which were originated prior to the spin-off and for which the Company was allegedly a guarantor. An accrual for claims associated with these alleged guarantees on leases rejected as of June 30, 1996 was established in fiscal 1996. The former subsidiary rejected additional leases for which an additional accrual was established in fiscal 1997. Based on the information presently available, management believes the balance of the accrual at December 31, 1997 is adequate to cover any alleged liability the Company may have 'under the alleged guarantees. Actual results may differ from this forward-looking projection. Please refer to the risk factors discussion herein. TANDYCRAFTS, INC. PART II - OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders - ------- ------------------------------------------------- The following proposals were approved at the Company's annual meeting held on November 12, 1997: Affirmative Votes Against Votes or Withheld ------------ ------------- 1. Election of management's slate of nominees to serve as Directors: R. Earl Cox III 9,134,100 2,798,467 Joe K. Pace 9,180,560 2,752,007 Robert Schutts 9,175,060 2,757,507 Sheldon I. Stein 9,178,650 2,753,917 Michael J. Walsh 9,233,708 2,698,859 Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits: Exhibit 10.18 Ninth Amendment to Revolving Credit and Term Loan Agreement Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K, dated January 23, 1998, which included the contents of a press release announcing the unaudited results of operations for the three and six-month periods ended December 31, 1997. TANDYCRAFTS, INC. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TANDYCRAFTS, INC. (Registrant) Date: February 15, 1998 By:/s/Michael J. Walsh --------------------------- Michael J. Walsh President, Chief Executive Officer and Director Date: February 15, 1998 By:/s/James D. Allen --------------------------- James D. Allen Executive Vice President and Chief Financial Officer (Principal Financial Officer) EX-10.18 2 NINTH AMENDMENT TO REVOLVING ---------------------------- CREDIT AND TERM LOAN AGREEMENT ------------------------------ This Ninth Amendment To Revolving Credit And Term Loan Agreement ("Ninth Amendment") is made by and among TANDYCRAFTS, INC., a Delaware corporation ("Company"), THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation, SAV-ON, INC., a Texas corporation, DAVID JAMES MANUFACTURING, INC., a Texas corporation, BRAND NAME APPAREL, INC., a Texas 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 WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION (formerly First Interstate Bank of Texas, N.A.), BANK ONE, TEXAS, N.A. and NBD BANK (collectively, the "Banks") and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, 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, certain of Banks and Agent entered into that certain First Amendment to Revolving Credit and Term Loan Agreement dated December 3, 1993 ("First Amendment"); and WHEREAS, the Company, the Guarantors, certain of Banks and Agent entered into that certain Second Amendment To Revolving Credit and Term Loan Agreement dated September 26, 1994 ("Second Amendment"); and WHEREAS, the Company, Guarantors, certain of Banks and Agent entered into that certain Third Amendment to Revolving Credit and Term Loan Agreement dated December 31, 1994 ("Third Amendment"); and WHEREAS, the Company, Guarantors, certain of Banks and Agent entered into that certain Fourth Amendment to Revolving Credit and Term Loan Agreement dated July 6, 1995 ("Fourth Amendment"); and WHEREAS, the Company, Guarantors, certain of Banks and Agent entered into that certain Fifth Amendment to Revolving Credit and Term Loan Agreement dated December 31, 1995 ("Fifth Amendment"); and WHEREAS, the Company, Guarantors, certain of Banks and Agent entered into that certain Sixth Amendment to Revolving Credit and Term Loan Agreement dated October 31, 1996 ("Sixth Amendment"); and WHEREAS, the Company, Guarantors, certain of Banks and Agent entered into that certain Seventh Amendment to Revolving Credit and Term Loan Agreement dated December 31, 1996 ("Seventh Amendment"); and WHEREAS, the Company, Guarantors and Banks entered into that certain Eighth Amendment to Revolving Credit and Term Loan Agreement dated March 31, 1997 ("Eighth Amendment"); and WHEREAS, the Company, Guarantors, certain of 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. The definition of "Termination Date" in Article I of the Loan Agreement is amended to read in its entirety as follows: "Termination Date" shall mean October 31, 1999. 2. Banks waive the violation by Company of Section 9.03 of the Loan Agreement for the quarter ended September 30, 1997. 3. Company and Guarantors warrant and represent to Banks that no Event of Default exists. 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. 4. Except as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth Amendment and this Ninth Amendment, the Loan Agreement is ratified and confirmed and shall remain in full force and effect. 5. This Ninth Amendment shall be governed by and construed in accordance with the laws of the State of Texas. 6. Company agrees to pay all expenses incurred by Agent and Banks in connection with the negotiation and preparation of this Ninth Amendment, including reasonable attorney's fees. 7. This Ninth 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. 8. 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. 9. This Ninth Amendment shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 10. 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 September 30, 1997. TANDYCRAFTS, INC., a Delaware corporation By: /s/ James D. Allen -------------------------------- James D. Allen, Executive Vice President COMPANY SAV-ON, INC., a Texas corporation By: /s/ Russell Price -------------------------------- Russell Price, Secretary DAVID JAMES MANUFACTURING, INC., a Texas corporation By: /s/ Russell Price -------------------------------- Russell Price, Secretary BRAND NAME APPAREL, INC. a Texas corporation By: /s/ Russell Price -------------------------------- Russell Price, Secretary THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation By: /s/ Russell Price -------------------------------- Russell Price, Secretary PLC LEATHER COMPANY, a Nevada corporation By: /s/ Russell Price -------------------------------- Russell Price, Secretary TANDYARTS, INC., a Nevada corporation By: /s/ Russell Price -------------------------------- Russell Price, Secretary COLLEGE FLAGS AND MANUFACTURING, INC., a South Carolina corporation, By: /s/ Russell Price -------------------------------- Russell Price, Secretary GUARANTORS WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION (formerly First Interstate Bank of Texas, N.A.) By: /s/ Susan Sheffield -------------------------------- Susan Sheffield, Vice President BANK ONE, TEXAS, N.A. By: /s/ Michael Wilson -------------------------------- Michael Wilson, Senior Vice President NBD BANK By: /s/ Jenny Gilpin -------------------------------- Jenny Gilpin, Vice President BANKS EX-27 3
5 This schedule contains summary financial information extracted from Tandycrafts, Inc's December 31, 1997 Form 10Q and is qualified in its entirety by reference to such Form 10Q filing. 1,000 6-MOS JUN-30-1998 DEC-31-1997 491 0 40,762 1,808 53,537 99,392 51,277 25,629 165,395 28,154 0 0 0 18,528 70,199 165,395 128,596 128,596 84,536 120,662 0 0 1,773 6,161 2,156 4,005 0 0 0 4,005 0.32 0.32
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