-----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, O19VtRz4EN3RakVtlNV5qfn3ECDhEWRPILgux2XB7LzPECtUSt7uqH9eg77aadYR JDdEQ6YaPOvFX2cCH121MA== 0000930661-99-002331.txt : 19991018 0000930661-99-002331.hdr.sgml : 19991018 ACCESSION NUMBER: 0000930661-99-002331 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991012 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-K/A SEC ACT: SEC FILE NUMBER: 001-07258 FILM NUMBER: 99727039 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/A 1 FORM 10-K AMENDMENT NO. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE --- ACT OF 1934 For the fiscal year ended June 30, 1999 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. ___ As of September 13, 1999, there were 12,083,618 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 $38.3 million. DOCUMENTS INCORPORATED BY REFERENCE Location in Form 10-K Incorporated Document --------------------- --------------------- Part III Proxy Statement for 1999 Annual Meeting Reason for Amendment - -------------------- This amendment is being filed because the date on the Report of Independent Accountants in Tandycrafts, Inc.'s Form 10-K filing for the fiscal year ended June 30, 1999 was incomplete. There were no other changes made to this filing. Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- Index to Financial Statements Financial Statements: Page -------------------- -------- Report of Independent Accountants 20 Consolidated Balance Sheets, June 30, 1999 and 1998 21 Consolidated Statements of Operations for the Years Ended June 30, 1999, 1998 and 1997 22 Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 1998 and 1997 23 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1999, 1998 and 1997 24 Notes to Consolidated Financial Statements 25 Financial Statement Schedules: ------------------------------ For each of the three years in the period ended June 30, 1999: Schedule II - Valuation and Qualifying Accounts and Reserves 40 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Tandycrafts, Inc. In our opinion, the consolidated balance sheet and the related statements of operations, of cash flows and of stockholders' equity listed in the accompanying index present fairly, in all material respects, the financial position of Tandycrafts, Inc. and its subsidiaries at June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(1) on page 37 presents fairly, in all materially respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule 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. PRICEWATERHOUSECOOPERS LLP Fort Worth, Texas August 10, 1999, except for the first paragraph of Note 9, as to which the date is September 28, 1999 20 TANDYCRAFTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, ------------------ 1999 1998 --------- -------- ASSETS Current assets: Cash...................................................... $ 744 $ 1,216 Trade accounts receivable, net of allowance for doubtful accounts of $2,460 and $2,755, respectively............. 20,783 28,086 Inventories............................................... 35,026 45,990 Other current assets...................................... 6,988 7,785 -------- -------- Total current assets................................... 63,541 83,077 -------- -------- Property and equipment, net................................ 29,560 22,886 Other assets............................................... 5,256 6,929 Goodwill, net.............................................. 24,694 37,799 -------- -------- $123,051 $150,691 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable......................................... $ 11,988 $ 12,155 Accrued liabilities and other............................ 16,467 12,520 -------- -------- Total current liabilities.............................. 28,455 24,675 -------- -------- Long-term debt............................................. 30,000 34,230 Long-term capital lease obligation......................... 1,671 - Deferred taxes............................................. - 2,822 Stockholders' equity: Common stock, $1 par value, 50,000,000 shares authorized, 18,527,988 issued....................................... 18,528 18,528 Additional paid-in capital............................... 20,559 20,545 Retained earnings........................................ 48,241 72,074 Common stock in treasury, at cost, 6,517,015 and 5,917,419 shares, respectively.......................... (24,403) (22,183) -------- -------- Total stockholders' equity............................ 62,925 88,964 -------- -------- Commitments and contingencies (Note 11) $123,051 $150,691 ======== ========
The accompanying notes are an integral part of these financial statements. 21 TANDYCRAFTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Year Ended June 30, --------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Net sales............................................... $ 194,698 $ 232,495 $ 244,924 ---------- ---------- ---------- Operating costs and expenses: Cost of goods sold (exclusive of depreciation)......... 139,525 153,484 160,325 Selling, general and administrative.................... 64,118 63,182 79,185 Restructuring charge................................... 8,145 - - Impairment of long-lived assets........................ 9,522 - - Loss on sale of business unit.......................... - 623 - Depreciation and amortization.......................... 4,327 4,828 5,374 ---------- ---------- ---------- Total operating costs and expenses.................... 225,637 222,117 244,884 ---------- ---------- ---------- Operating income (loss)............................... (30,939) 10,378 40 Interest income......................................... 416 87 39 Interest expense........................................ 2,589 3,346 3,124 ---------- ---------- ---------- Income (loss) before income taxes....................... (33,112) 7,119 (3,045) Provision (benefit) for income taxes.................... (9,279) 2,502 (1,127) ---------- ---------- ---------- Net income (loss).................................... $ (23,833) $ 4,617 $ (1,918) ========== ========== ========== Net income (loss) per common share: Basic and diluted.................................... $ (1.96) $ .37 $ (.15) ========== ========== ========== Weighted average common shares: Basic 12,182 12,645 12,423 Diluted 12,182 12,659 12,423
The accompanying notes are an integral part of these financial statements. 22 TANDYCRAFTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Year Ended June 30, --------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss)................................................ $ (23,833) $ 4,617 $ (1,918) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................................... 4,327 4,828 5,374 Deferred income taxes........................................... (8,340) 1,543 (931) Loss on sale of business unit................................... - 623 - Impairment of long-lived assets................................. 9,522 - - Restructuring charge............................................ 8,145 - - Changes in assets and liabilities, excluding effect of businesses acquired or sold: Receivables.................................................... 7,987 4,415 (2,224) Inventories.................................................... 13,161 (3,512) 7,401 Other assets................................................... (6,325) 805 (3,054) Accounts payable, accrued expenses and income taxes............ 3,201 (5,383) 4,725 ---------- ---------- ---------- Net cash provided by operating activities................... 7,845 7,936 9,373 ---------- ---------- ---------- Cash flows from investing activities: Additions to property and equipment.............................. (9,323) (3,530) (3,794) Purchase of business, net of cash acquired....................... (270) - - Collection of note receivable.................................... 8,312 - - Proceeds from sales of assets.................................... - 2,342 3,750 ---------- ---------- ---------- Net cash used by investing activities....................... (1,281) (1,188) (44) ---------- ---------- ---------- Cash flows from financing activities: Sales of treasury stock to employee benefit plan, net............ 36 73 2,594 Purchases of treasury stock...................................... (2,242) - - Payments under bank credit facility, net......................... (4,830) (6,610) ( 12,430) ---------- ---------- ---------- Net cash used by financing activities....................... (7,036) (6,537) (9,836) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents.................. (472) 211 (507) Balance, beginning of year........................................ 1,216 1,005 1,512 ---------- ---------- ---------- Balance, end of year.............................................. $ 744 $ 1,216 $ 1,005 ========== ========== ========== Supplemental cash flow information: Cash paid (received) during the year for: Interest........................................................ $ 2,470 $ 3,303 $ 3,249 Income taxes.................................................... $ 602 $ (832) $ (3,615) Capital lease obligation incurred............................... $ 2,033 $ - -
The accompanying notes are an integral part of these financial statements. 23 TANDYCRAFTS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands)
Additional Common paid-in Retained Treasury stock capital earnings stock Total ---------- ---------- ---------- ---------- ---------- Balance, June 30, 1996.............. $ 18,528 $ 19,371 $ 69,375 $ (23,676) $ 83,598 Sale of 419,271 shares of treasury stock to employee benefit plan, net.................. - 1,061 - 1,533 2,594 Net loss............................ - - (1,918) - (1,918) ---------- ---------- ---------- ---------- ---------- Balance, June 30, 1997.............. $ 18,528 $ 20,432 $ 67,457 $ (22,143) $ 84,274 Sale of 12,917 shares of treasury stock to employee benefit plan, net.................. - 113 - (40) 73 Net income.......................... - - 4,617 - 4,617 ---------- ---------- ---------- ---------- ---------- Balance, June 30, 1998.............. $ 18,528 $ 20,545 $ 72,074 $ (22,183) $ 88,964 Sale of 9,686 shares of treasury stock to employee benefit plan, net.................. - - - 36 36 Purchase of 609,282 shares of treasury stock..................... - 14 - (2,256) (2,242) Net loss............................ - - (23,833) - (23,833) ---------- ---------- ---------- ---------- ---------- Balance, June 30, 1999.............. $ 18,528 $ 20,559 $ 48,241 $ (24,403) $ 62,925 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 24 TANDYCRAFTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Accounting Principles Description of Business - Tandycrafts, Inc. ("Tandycrafts" or the "Company") is a leading maker and marketer of consumer products, including frames and wall decor, office supplies, home furnishings and gift products. The Company's products are sold nationwide through wholesale distribution channels, including mass merchandisers and specialty retailers, and direct-to-consumer channels through the Company's retail stores, mail order and the Internet. During the quarter ended December 31, 1998, the Company adopted a plan of closing its leather and crafts retail stores and related manufacturing operations and as of June 30, 1999 such operations were closed. These operations comprised substantially all of the operations within the Company's Leather and Crafts operating division. 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, ---------------- 1999 1998 ------- ------- Finished goods..................... $24,282 $33,244 Raw materials and work-in-process.. 10,744 12,746 ------- ------- $35,026 $45,990 ======= ======= 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, is 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. Derivative instruments - The Company has used an interest rate swap agreement to manage interest rate risk on its floating rate revolving credit facility. The interest rate swap is matched as a hedge against a portion of the Company's revolving credit facility. Amounts to be paid or received under the interest rate swap agreement are accrued as interest rates change and are recognized over the life of the swap agreement as an adjustment to interest expense. The fair value of the swap agreement is not recognized in the financial statements since it is accounted for as a hedge. 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 25 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, 1999 and 1998 was $3,368,000 and $4,374,000, respectively. Goodwill which arose prior to October 31, 1970, aggregating $1,163,000, 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. Impairment of Long-lived assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the assets may not be recoverable. An impairment loss will be recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the assets is less than the net book value of the assets. The amount of the impairment loss is measured as the difference between the net book value and the estimated fair value of the assets. The adoption of this accounting policy in fiscal 1997 did not have a material impact on the Company's financial position or results of operations. Income taxes - Income taxes are calculated in accordance with the liability method, which requires that deferred tax assets and liabilities be recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted rates. Net income (loss) per share - Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average common shares outstanding. Diluted earnings per share is computed by dividing the income available to shareholders by the weighted-average common share and potential common shares outstanding during the period. For fiscal 1999, 1998 and 1997, the number of weighted-average shares and potential common shares is as follows (in thousands): 1999 1998 1997 ------ ------ ------ Weighted-average shares - basic........ 12,182 12,645 12,423 Potential common shares................ - 14 - ------ ------ ------ Total weighted-average common and potential common shares - diluted..... 12,182 12,659 12,423 ====== ====== ====== Advertising costs - Advertising costs are expensed the first time the advertising takes place. Advertising expense for fiscal 1999, 1998 and 1997 was $4,000,000, $5,700,000 and $7,700,000, respectively. Pervasiveness of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications - Certain amounts in prior years have been reclassified to conform to the current year presentation. New accounting standards - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting guidelines for derivatives and requires that an entity recognize all derivatives as either assets or liabilities on the statement of financial position and measure those instruments at fair value. This statement is effective for the Company beginning in fiscal 2001. The Company is analyzing the implementation requirements and does not anticipate that the adoption of this statement will have a material impact on the Company's consolidated financial statements. In January 1998, the American Institute of Certified Public Accountants (the "AICPA") issued Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that an entity only capitalize those costs of computer software developed or obtained for internal use that were incurred in the development and implementation stages. Costs incurred during the conceptual formulation stage and training costs are expensed as incurred. SOP 98-1 becomes effective for the Company July 1, 1999; however, the Company's current policy falls within the guidelines of the statement; thus, the Company does not anticipate any impact from adopting this statement. 26 Comprehensive Income (Loss) - Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period, except those changes resulting from investments by owners and distributions to owners. The Company has not had any elements of income during the fiscal years 1999, 1998 or 1997 not reported in net income, thus comprehensive income is not separately reported. Note 2 - Divestiture In the quarter ended December 31, 1998, the Board of Directors of the Company approved a plan to close the Company's 121 leather and crafts retail stores and related manufacturing operations to allow the Company to continue to narrow its focus to its more profitable business segments. The divestiture plan was substantially complete and all retail stores were closed as of June 30, 1999. As a result of this plan, the Company recorded charges totaling $11,106,000 during the quarter ended December 31, 1998. Approximately $2,961,000 of these charges related to the write-down of inventory to its estimated liquidation value and is included in cost of sales in the accompanying consolidated statements of operations. In the fourth quarter of fiscal 1999, as a result of better than expected inventory liquidation sales, $503,000 of the inventory write-down was reversed and credited to cost of sales. Approximately $8,145,000 of the charges related to the write-down of non-inventory assets and anticipated future cash outlays and is classified as restructuring charge in the accompanying consolidated statements of operations. Included in the $8,145,000 restructuring charge is approximately $5,441,000 related to non-cash write-downs of non-inventory assets to their estimated net realizable value, including $3,923,000 related to the write-off of goodwill, $1,313,000 related to the write-down of fixed assets (primarily comprised of store fixtures and leasehold improvements and manufacturing equipment substantially all of which have been abandoned), and $205,000 related to the write-down of various other assets. The remaining restructuring charge of $2,704,000 represents an accrual for anticipated future cash outlays for lease obligations and other related exit costs. As of June 30, 1999, the lease agreements for 105 stores had been terminated through settlement, sub-let or assignment. Subsequent to June 30, 1999, six more leases have been settled. All of the manufacturing operations have been closed. The following table sets forth the activity in the restructuring reserve, which is included in current accrued liabilities in the June 30, 1999 balance sheet (in thousands): December 31, Cash June 30, 1998 Payments 1999 ------------ ------------ ------------ Lease obligations $ 2,346 $ 1,881 $ 465 Other 358 227 131 ------------ ------------ ------------ $ 2,704 $ 2,108 $ 596 ============ ============ ============ The above provisions are estimates based on the Company's judgment at this time. Adjustments to the restructuring provisions may be necessary in the future based on further development of restructuring related costs. Revenues and operating losses (before restructuring charges, but including the inventory write-down charge of $2,458,000) for the divested operations were $34,874,000 and $11,962,000, respectively, for the fiscal year ended June 30, 1999 compared to revenues and operating income of $47,454,000 and $150,000, respectively, in fiscal 1998 and $53,413,000 and $530,000, respectively, for fiscal 1997. 27 Note 3 - Licensed Lifestyles, Inc. As a result of three consecutive years of operating losses and declining sales, as well as the recent industry-wide weakening of licensed product sales, the Company performed an analysis of the recoverability of the net book value of the long-lived assets of Licensed Lifestyles, Inc., its wholly-owned licensed products subsidiary. Through this assessment, management determined that the expected future cash flows (undiscounted and before interest) from these assets were less than their net book value. These long-lived assets were then written- down to their estimated fair value based upon a valuation analysis performed by an independent third party valuation firm, resulting in an impairment loss of $9,522,000. Approximately, $9,048,000 of this charge related to the write-down of goodwill and $474,000 related to the write-down of property, plant and equipment. Property, plant and equipment remaining at Licensed Lifestyles has a net book value of $1,572,000 at June 30, 1999. Due to the continued softness in the sports licensed product market, management analyzed Licensed Lifestyles' product lines and decided to discontinue several under-performing lines. The discontinuance of these product lines resulted in an inventory write-down of $1,680,000 which was recorded in the quarter ended June 30, 1999. Note 4 - Sale of Joshua's Christian Stores The Company sold Joshua's Christian Stores effective May 31, 1998 to Family Christian Stores for consideration totaling approximately $11,500,000, with approximately $2,900,000 paid in cash at the time of closing and approximately $8,600,000 in a note receivable. The sale of this business resulted in a pretax loss of $623,000, comprised primarily of transaction related costs. During fiscal 1999, this note was received in full. Note 5 - Cargo Furniture and Accents In October 1998, the Company was informed that Cargo Furniture and Accents ("Cargo"), a former subsidiary of the Company, had obtained a financial advisor for the purpose of actively pursuing additional capital to expedite the chain's conversion of their mall-based furniture stores to their new, higher performing Cargo Collection Store concept. At that time, Cargo had opened eight of the Cargo Collection Stores. However, due to Cargo's limited capital resources and the poor performance of their mall-based stores, Cargo determined that it required additional capital to complete the conversion process. In December 1998, Cargo informed the Company that it was unable to obtain additional investment capital. In addition, it was probable that Cargo would be in default of certain covenants contained in their term note agreement, and Cargo would not be able to cure the events of default. The Company had guaranteed Cargo's term note, and had additional amounts receivable from Cargo. On January 11, 1999, the Company was informed by Cargo's lender that Cargo had defaulted on its term note and that Cargo's lender required the Company to perform pursuant to its guaranty of the note. On February 1, 1999, the Company complied with the lender's request. As a result of Cargo's poor financial condition, the Company determined that recovery of the $2,481,000 note balance and the receivables from Cargo was not probable. Consequently, loss provisions of $3,465,000 were recorded during the quarter ended December 31, 1998 and are included in selling, general and administrative expenses. As a result of making the guaranty payment, the Company had the option to obtain a majority of Cargo's common stock, thereby obtaining voting control of Cargo. Accordingly, the Company began to consolidate the results of operations of Cargo effective February 1, 1999, recording its assets and liabilities at their estimated fair market value at that date. On June 11, 1999, the Company completed the foreclosure of Cargo and acquired ownership. 28 Note 6 - Account Receivable Securitization The Company utilizes a revolving trade accounts receivable securitization program to sell without recourse, through a wholly-owned subsidiary, certain trade accounts receivable. Under the program, the maximum amount allowed to be sold at any given time through June 30, 1999, was $12,000,000. The maximum amount of receivables that can be sold may be seasonally adjusted. At June 30, 1999, the amount of trade accounts receivable outstanding which had been sold approximated $4,247,000. The proceeds from the sales were used to reduce borrowings under the Company's revolving credit facility. Costs of the program, which primarily consist of the purchaser's financing cost of issuing commercial paper backed by the receivables, totaled $343,000 for fiscal year ended June 30, 1999. The Company, as agent for the purchaser of the receivables, retains collection and administrative responsibilities for the purchased receivables. Note 7 - Property and Equipment and Accumulated Depreciation
As of June 30 (in thousands): 1999 1998 -------- -------- Property and equipment, at cost: Land...................................................................... $ 2,547 $ 2,419 Buildings................................................................. 15,746 13,373 Leasehold improvements.................................................... 6,756 4,233 Fixtures and equipment.................................................... 31,201 26,302 -------- -------- 56,250 46,327 Less accumulated depreciation.............................................. (26,690) (23,441) -------- -------- Property and equipment, net............................................... $ 29,560 $ 22,886 ======== ========
Note 8 - Accrued Liabilities and Other Accrued liabilities and other consisted of the following at June 30 (in thousands):
1999 1998 -------- -------- Accrued payroll and bonus.................................................. $ 3,493 $ 3,749 Income taxes payable....................................................... 877 1,122 Taxes, other than income taxes............................................. 823 667 Interest................................................................... 365 246 Restructuring accrual...................................................... 596 43 Accrual for sales allowances............................................... 1,633 1,685 Accrued legal.............................................................. 2,394 1,593 Accrued insurance.......................................................... 2,264 1,373 Other...................................................................... 4,022 2,042 -------- -------- $ 16,467 $ 12,520 ======== ========
Note 9 - Debt Effective March 31, 1999, the Company entered into a new revolving credit facility with a group of banks. The new facility is a $45 million revolving line of credit with a maturity date of March 31, 2001 and is renewable annually. The amount of credit available under the facility will decline to $40 million on April 1, 2000 to reflect management's projection of reduced capital needs. The terms of the new facility are essentially the same as the $50 million facility the Company operated under previously. At June 30, 1999, the Company was not in compliance with certain covenants of the credit facility. The Company received a waiver from the banks for these covenant violations through September 30, 1999. Effective September 27, 1999, the Company reached an agreement with its banks on revised covenants, with which the Company would have been in compliance at June 30, 1999. 29 Interest rates on borrowings under the current credit facility 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, 1999 ranged from 6.28% to 6.75%. At June 30, 1999, the Company had borrowings aggregating $30,000,000 and letters of credit aggregating $414,000 outstanding under this facility. 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 at LIBOR 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 transaction was executed to hedge interest rate risk on the Company's interest obligation associated with a portion of its revolving credit facility, and to change the nature of the liability from a variable to a fixed interest obligation. At June 30, 1999, the Company would have had to pay approximately $125,000 to terminate the interest rate swap. This amount was obtained from the counterparties and represents the fair market value of the Swap Agreement. Note 10 - Income Taxes The provision for income taxes is as follows (in thousands):
1999 1998 1997 -------- -------- -------- Current tax expense (benefit): Federal.......................................................... $ (1,042) $ 893 $ (226) State and local.................................................. 103 66 30 -------- -------- -------- Total current.................................................... (939) 959 (196) Deferred tax expense (benefit): Federal.......................................................... (8,340) 1,543 (931) -------- -------- -------- Total provision (benefit)......................................... $ (9,279) $ 2,502 $ (1,127) ======== ======== ========
Deferred tax liabilities (assets) are comprised of the following at June 30 (in thousands):
1999 1998 -------- -------- Depreciation...................................................... $ 1,142 $ 1,413 Deferred compensation............................................. - 109 Bad debts......................................................... - 15 Goodwill.......................................................... 323 2,142 -------- -------- Total deferred tax liabilities................................... 1,465 3,679 -------- -------- Inventory......................................................... (1,130) (672) Bad debts......................................................... (335) - Restructuring reserve............................................. (323) (99) Charitable contribution carryforwards............................. (559) (450) State tax loss carryforwards...................................... (2,058) (1,291) Federal tax loss carryforwards.................................... (4,954) - Other............................................................. (773) (575) -------- -------- Total deferred tax assets........................................ (10,132) (3,087) Valuation allowance............................................... 2,168 1,249 -------- -------- Net deferred tax assets.......................................... (7,964) (1,838) -------- -------- $ (6,499) $ 1,841 ======== ========
The use of the federal and state loss carryforwards and the charitable contribution carryforwards is limited by future taxable earnings by the Company and its subsidiaries. The Company believes that future pre-tax income during the carryforward period will be sufficient to utilize the federal loss carryforwards; however, valuation allowances of $2,016,000 and $152,000, respectively, have been provided for a portion of the state loss and charitable contribution carryforwards. In fiscal 1998, the entire valuation allowance related to state tax loss carryforwards. 30 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, --------------------------------- 1999 1998 1997 -------- -------- -------- Statutory U.S. tax provision.................. $(11,258) $ 2,420 $ (1,066) Increase (decrease) in rates resulting from: State and local taxes, net................... 67 43 19 Goodwill write-offs.......................... 1,658 278 - Other........................................ 254 (239) (80) -------- -------- -------- Tax provision................................. $ (9,279) $ 2,502 $ (1,127) ======== ======== ========
Note 11 - Commitments and Contingencies The Company leases certain properties, primarily retail stores, under operating leases which expire through 2007. Real estate taxes, maintenance and certain other costs are generally borne by the Company. During fiscal 1999, the Company entered into a capital lease arrangement for computer hardware and software related to the Company's implementation of an enterprise-wide information system. Assets under capital lease of $2,033,000 are included in the consolidated balance sheet. The composition of total rental expense for operating leases is as follows (in thousands):
Year ended June 30, 1999 1998 1997 -------- -------- -------- Rentals: Minimum...................................... $ 5,280 $ 7,298 $ 8,622 Contingent (percentage of sales)............. 20 20 70 -------- -------- -------- $ 5,300 $ 7,318 $ 8,692 ======== ======== ========
Minimum rental commitments for noncancellable leases at June 30, 1999 are summarized as follows (in thousands):
Operating Capital Year ended June 30, Leases Leases -------- -------- 2000...................................... $ 3,692 $ 468 2001...................................... 3,075 468 2002...................................... 2,457 468 2003...................................... 1,264 468 2004...................................... 713 468 2005 and thereafter....................... 1,297 - -------- -------- Total minimum lease payments.............. $ 12,498 $ 2,340 ======== Less: Amount representing interest at 6.00%.................................. (307) -------- Present value of net minimum lease payments.......................... $ 2,033 ========
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 the alleged guarantees on leases rejected as of June 30, 1999 has been established. Based on the information presently available, management believes the amount of the accrual at June 30, 1999 is adequate to cover the liability the Company may incur under the alleged guarantees. 31 Note 12 - Tandycrafts Retirement Savings Plan The Tandycrafts Retirement Savings Plan (the "TRSP" or the "Plan") is open to all eligible employees of the Company employed in the United States. Participants may contribute between 3% and 15% of gross salary and wages into the 401(k) portion of the plan which becomes immediately vested. Participants also have the ability to direct their contributions into various investment options. The Company's matching contribution is 100% of the first 5% of the participant's contribution and is invested in Company common stock. The Company's contributions become vested upon completion of five years of credited service. The employee and Company contributions are maintained by a trustee. Company contributions to the Plan, net of forfeitures, for the years ended June 30, 1999, 1998 and 1997 were approximately $998,000, $1,166,000 and $1,534,000, respectively. Note 13 - Share Repurchase Program In September 1998, the Company's Board of Directors authorized a common share repurchase program that provides for the Company to purchase, in the open market and through negotiated transactions, up to $2,000,000 of the Company's outstanding common stock. As of June 30, 1999, the Company had repurchased approximately 540,000 shares for an aggregate purchase price of $1,995,000. Note 14 - Shareholder Rights Plan In May 1997, the Board of Directors adopted a shareholder rights plan and declared a dividend of one common share purchase right (a "Right") for each outstanding share of Tandycrafts common stock. Each Right entitles the registered holder the right upon exercise to purchase from the Company, that number of common shares having a market value of two times the applicable exercise price. The exercise price was initially set at $30.00 and is subject to adjustment by the Board. The Rights will become exercisable ten business days after the earliest occurrence of: (i) a public announcement that a person or group of affiliated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding common shares or (ii) the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 15% or more of such outstanding common shares. The Rights will expire on May 19, 2007, unless the expiration date is extended or unless the Rights are earlier redeemed by the Company. The Board of Directors may amend the terms of the Rights without consent of the holder of the Rights, including an amendment to extend or reduce the period during which the Rights are redeemable or exercisable. The Rights are not separately traded, are not currently exercisable and have no voting rights until exercised. The Board may redeem the Rights for $0.01 per Right at any time prior to the Rights becoming exercisable. Note 15 - 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 rates of either 20% or 33-1/3% 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 Plan 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. 32 A summary of stock option activity under these plans follows:
Weighted - Average Exercise Shares Price ----------- ----------- Options outstanding, June 30, 1996................ 1,076,000 $ 12.33 Options granted................ 712,700 $ 4.75 Options exercised.............. - $ - Options terminated............. (1,022,800) $ 12.29 ----------- ----------- Options outstanding, June 30, 1997................ 765,900 $ 5.33 Options granted................ - $ - Options exercised.............. - $ - Options terminated............. (38,200) $ 9.62 ----------- ----------- Options outstanding, June 30, 1998................ 727,700 $ 5.11 Options granted................ 132,500 $ 3.47 Options exercised.............. - $ - Options terminated............. (30,000) $ 9.23 ----------- ----------- Options outstanding, June 30, 1999................ 830,200 $ 4.70 =========== =========== Options exercisable, June 30, 1999................ 462,746 $ 5.01 =========== =========== Options available for future grant, June 30, 1999.. 809,800 ===========
A summary of stock options outstanding and exercisable at June 30, 1999 follows:
Options Outstanding Options Exercisable -------------------------------------------------- ----------------------------- Shares Weighted-Average Shares Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices at 6/30/99 Contractual Life Exercise Price at 6/30/99 Exercise Price - --------------------- ----------- ------------------- ---------------- ----------- ---------------- $10.69 - 17.62 22,400 4.14 years $12.77 21,200 $12.78 $ 3.47 - 8.82 807,800 7.94 years $ 4.47 441,546 $ 4.64 ------- ------- $ 3.47 - 17.62 830,200 $ 4.70 462,746 $ 5.01
Pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation" ("FAS 123"), and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The 132,500 options granted during fiscal 1999 have a fair market value of approximately $266,000. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants: no expected dividends, expected volatility of 32.6%, risk free interest rate of 6.00% and expected lives of seven years each. A summary of stock option transactions under both the Company's stock option plan and information about fixed-price options is presented above. 33 For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the vesting period. The Company's pro forma information is as follows (in thousands, except per share amounts):
1999 1998 1997 --------- --------- --------- Net income (loss): As reported $ (23,833) $ 4,617 $ (1,918) Pro forma $ (24,362) $ 4,161 $ (2,096) Income (loss) per common share - basic and diluted: As reported $ (1.96) $ 0.37 $ (0.15) Pro forma $ (2.00) $ 0.33 $ (0.17)
The effects of applying FAS No. 123 in this pro forma disclosure are not indicative of future amounts as the pro forma amounts above do not include the impact of stock option awards granted prior to fiscal 1996 and additional awards anticipated in future years. Note 16 - Industry Segment and Geographic Area Information The Company is a leading maker and marketer of consumer products, including frames and wall decor, office supplies, home furnishings and gift products. The Company's products are sold nationwide through wholesale distribution channels, including mass merchandisers and specialty retailers, and direct-to-consumer channels through the Company's retail stores, mail order and the Internet. Divested operations for fiscal 1999 include the operations of the Company's former Leather and Crafts division which were closed in fiscal 1999. Divested operations for fiscal 1998 include the operations of the Company's former Leather and Crafts division and Joshua's Christian Stores which was sold in fiscal 1998. Fiscal 1997 divested operations include those operations included in the fiscal 1998 divested operations plus all business units sold or closed as a result of the December 1995 restructuring and consolidation program. During fiscal 1999, 1998 and 1997, the Company had net sales of $35,913,000, $38,495,000 and $30,467,000, respectively, to one group of customers under common control. In addition, the Company also had sales in fiscal 1999 and 1998 of $20,483,000 and $24,133,000, respectively, to another 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 Frames and Wall Decor and Gifts divisions, in the normal course of business, grant credit with the majority of their sales. Such receivables are generally not collateralized. The concentration of credit risk within these divisions may impact the Company's overall credit risk, either positively or negatively, in that these customers may be similarly affected by industry-wide changes in economic or other conditions. The Company performs ongoing credit evaluations of its customers' financial condition and has established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customer and other information. Intersegment sales represent sales from one division to another. Operating income (loss) is divisional revenue less divisional operating expenses, which excludes corporate expenses, goodwill amortization, interest expense and taxes on income. Identifiable assets by division are those assets that are used in each division. Corporate assets are comprised of cash and short-term investments. 34 Segment information for each of the three years in the period ended June 30, 1999 is as follows (in thousands):
1999 Frames ---- and Office Home Divested Wall Decor Supplies Furnishings Gifts Operations Consolidated ------------ ------------ ------------- ------------ ------------ ------------ Total sales.............................. $ 96,004 $ 39,629 $ 6,036 $ 18,285 $ 34,874 $ 194,828 Intersegment sales....................... (46) (67) - (17) - (130) ------------ ------------ ------------- ------------ ------------ ------------ Net sales................................ $ 95,958 $ 39,562 $ 6,036 $ 18,268 $ 34,874 $ 194,698 ============ ============ ============= ============ ============ ============ Segment operating income (loss) (1)...... $ 12,128 $ 1,933 $ (602) $ (12,329) $ (20,314) $ (19,184) ============ ============ ============= ============ ============ Corporate expenses including goodwill amortization and interest expense, net.. (13,928) ------------ Income (loss) before income taxes (1).... $ (33,112) ============ Depreciation............................. $ 1,208 $ 803 $ 64 $ 546 $ 749 $ 3,370 Goodwill amortization.................... 535 4 - 374 44 957 ------------ ------------ ------------- ------------ ------------ ------------ Total depreciation and amortization...... $ 1,743 $ 807 $ 64 $ 920 $ 793 $ 4,327 ============ ============ ============= ============ ============ ============ Identifiable assets...................... $ 77,327 $ 15,191 $ 5,756 $ 16,028 $ 8,005 $ 122,307 ============ ============ ============= ============ ============ Corporate assets......................... 744 ------------ $ 123,051 ============ Capital expenditures..................... $ 8,153 $ 300 $ 32 $ 622 $ 216 $ 9,323 ============ ============ ============= ============ ============ ============ (1) Includes restructuring costs of $10,603 in Divested Operations for the Tandy Leather divestiture.
1998 Frames ---- and Office Home Divested Wall Decor Supplies Furnishings Gifts Operations Consolidated ------------ ------------ ------------- ------------ ------------ ------------ Total sales.............................. $ 93,560 $ 38,549 $ - $ 23,805 $ 76,863 $ 232,777 Intersegment sales....................... (51) (89) - (121) (21) (282) ------------ ------------ ------------- ------------ ------------ ------------ Net sales................................ $ 93,509 $ 38,460 $ - $ 23,684 $ 76,842 $ 232,495 ============ ============ ============= ============ ============ ============ Segment operating income (loss).......... $ 11,784 $ 1,878 $ - $ (110) $ 163 $ 13,715 ============ ============ ============= ============ ============ Corporate expenses including goodwill amortization and interest expense, net.. (6,596) ------------ Income before income taxes............... $ 7,119 ============ Depreciation............................. $ 1,146 $ 798 $ - $ 470 $ 1,414 $ 3,828 Goodwill amortization.................... 535 4 - 374 87 1,000 ============ ============ ============= ============ ============ ------------ Total depreciation and amortization...... $ 1,681 $ 802 $ - $ 844 $ 1,501 $ 4,828 ============ ============ ============= ============ ============ ============ Identifiable assets...................... $ 66,583 $ 14,964 $ - $ 28,543 $ 39,385 $ 149,475 ============ ============ ============= ============ ============ Corporate assets......................... 1,216 ------------ $ 150,691 ============ Capital expenditures..................... $ 1,314 $ 569 $ - $ 497 $ 1,150 $ 3,530 ============ ============ ============= ============ ============ ============ 1997 Frames ---- and Office Home Divested Wall Decor Supplies Furnishings Gifts Operations Consolidated ------------ ------------ ------------- ------------ ------------ ------------ Total sales.............................. $ 85,160 $ 35,781 $ - $ 26,594 $ 97,854 $ 245,389 Intersegment sales....................... (69) (181) - (163) (52) (465) ------------ ------------ ------------- ------------ ------------ ------------ Net sales................................ $ 85,091 $ 35,600 $ - $ 26,431 $ 97,802 $ 244,924 ============ ============ ============= ============ ============ ============ Segment operating income (loss).......... $ 11,590 $ 2,440 $ - $ (399) $ (7,403) $ 6,228 ============ ============ ============= ============ ============ Corporate expenses including goodwill amortization and interest expense, net.. (9,273) ------------ Income (loss) before income taxes........ $ (3,045) ============ Depreciation............................. $ 1,157 $ 862 $ - $ 544 $ 1,772 $ 4,335 Goodwill amortization.................... 535 4 - 374 126 1,039 ------------ ------------ ------------- ------------ ------------ ------------ Total depreciation and amortization...... $ 1,692 $ 866 $ - $ 918 $ 1,898 $ 5,374 ============ ============ ============= ============ ============ ============ Identifiable assets...................... $ 66,828 $ 12,539 $ - $ 29,369 $ 46,788 $ 155,524 ============ ============ ============= ============ ============ Corporate assets......................... 1,005 ------------ $ 156,529 ============ Capital expenditures..................... $ 1,325 $ 782 $ - $ 769 $ 918 $ 3,794 ============ ============ ============= ============ ============ ============
35 Note 17 - Quarterly Results (Unaudited) Summarized quarterly income statements (in thousands of dollars, except per share amounts) for the years ended June 30, 1999 and 1998 are set forth below:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ------------------- ------------------- ------------------- ------------------- 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- Net sales.......................... $ 51,065 $ 55,359 $ 52,853 $ 73,237 $ 50,253 $ 53,100 $ 40,527 $ 50,799 Costs and expenses: Cost of goods sold................ 34,791 35,834 39,476 48,702 36,061 35,766 29,197 33,182 Selling and administrative........ 13,077 15,932 20,354 17,665 15,094 14,935 15,593 14,650 Restructuring charge.............. - - 8,145 - - - - - Impairment of long-lived assets... - - - - - - 9,522 - Loss on sale of business unit..... - - - - - - - 623 Depreciation and amortization..... 1,079 1,270 1,088 1,259 1,117 1,254 1,043 1,045 -------- -------- -------- -------- -------- -------- -------- -------- Operating income (loss)............ 2,118 2,323 (16,210) 5,611 (2,019) 1,145 (14,828) 1,299 Interest expense, net.............. 492 862 591 911 517 841 573 645 -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes...................... 1,626 1,461 (16,801) 4,700 (2,536) 304 (15,401) 654 Provision (benefit) for income taxes...................... 618 512 (4,578) 1,644 (663) 106 (4,656) 240 -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss).................. $ 1,008 $ 949 $(12,223) $ 3,056 $ (1,873) $ 198 $(10,745) $ 414 ======== ======== ======== ======== ======== ======== ======== ======== Net income (loss) per common share - basic and diluted.. $ 0.08 $ 0.08 ($1.00) $ 0.24 ($.16) $ 0.02 ($0.89) $ 0.03 ======== ======== ======== ======== ======== ======== ======== ========
Item 9. Changes In and Disagreements With Accountants on Accounting and - ------ --------------------------------------------------------------- Financial Disclosure - -------------------- None. 36 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 1999 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, 1999. 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, 1999. 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, 1999. 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, 1999. 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 18 of this report. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K, on May 5, 1999, which included the contents of a press release announcing the elevation of James D. Allen to the position of executive vice president and chief operating officer and the naming of Michael J. Murray as treasurer and Troy A. Huseman as controller. The Company filed a Current Report on Form 8-K, on June 11, 1999 which included the contents of a press release announcing plans to reorganize its Pinnacle Art & Frame unit. 37 The Company filed a Current Report on Form 8-K, on June 24, 1999, which included the contents of a press release announcing it had reacquired Fort Worth-based Cargo Furniture & Accents, a leading national manufacturer and seller of children's and casual furniture and accessories. The Company filed a Current Report on Form 8-K, on June 25, 1999, which included the contents of a press release announcing it had added retail industry veteran Colon O. Washburn as a new board member. The Company filed a Current Report on Form 8-K, on July 14, 1999, which included the contents of a press release announcing that it had welcomed Mexican President Ernesto Zedillo Ponce de Leon and a host of other dignitaries during an opening celebration at the Company's new manufacturing facility in Durango, Mexico. The Company filed a Current Report on Form 8-K, on August 17, 1999, which included the contents of a press release announcing the unaudited results of operations for three months period and fiscal year ended June 30, 1999. (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. ____________________ 38 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 28, 1999 By: /s/ Michael J. Walsh -------------------------------- Michael J. Walsh 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 28th day of September, 1999, by the following persons on behalf of the Registrant and in the capacities indicated. /s/ R. E.. Cox III -------------------------------- R. E.. Cox III Chairman of the Board /s/ James D. Allen -------------------------------- James D. Allen Executive Vice President and Chief Operating Officer (Chief Financial Officer) /s/ Troy A. Huseman -------------------------------- Troy A. Huseman Controller and Chief Accounting Officer /s/ Joe K. Pace -------------------------------- Joe K. Pace Director /s/ Sheldon I. Stein -------------------------------- Sheldon I. Stein Director /s/ Colon O. Washburn -------------------------------- Colon O. Washburn Director /s/ Michael J. Walsh -------------------------------- Michael J. Walsh President and Chief Executive Officer and Director 39 Schedule II TANDYCRAFTS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves (In thousands)
Year ended June 30, ---------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Allowance for doubtful accounts: Balance, beginning of year $ 2,755 $ 1,680 $ 790 Additions charged to profit and loss 1,000 1,644 1,971 Accounts receivable charged off, net of recoveries (1,295) (569) (1,081) ---------- ---------- ---------- Balance, end of year $ 2,460 $ 2,755 $ 1,680 ========== ========== ==========
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