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 September 30, 1996
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 October 31, 1996
- ----------------------------- -----------------------------------------
Common Stock, $1.00 par value 12,524,272
TANDYCRAFTS, INC.
Form 10-Q
Quarter Ended September 30, 1996
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
Item Page No.
- ---- --------
1. Condensed Consolidated Financial Statements 3-8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I
Item 1. Financial Statements
--------------------
TANDYCRAFTS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,
--------------------------------
1996 1995
----------- -----------
Net sales $ 57,770 $ 62,349
----------- -----------
Operating costs and expenses:
Cost of goods sold 35,688 38,813
Selling, general and administrative 18,662 20,913
Depreciation and amortization 1,372 1,525
----------- -----------
Total operating costs and expenses 55,722 61,251
----------- -----------
Operating income 2,048 1,098
Interest expense, net 822 1,085
----------- -----------
Income before provision for income taxes 1,226 13
Provision for income taxes 429 4
----------- -----------
Net income $ 797 $ 9
=========== ===========
Net income per share $ 0.07 $ 0.00
=========== ===========
Weighted average common and
common equivalent shares 12,198 11,769
====== ======
TANDYCRAFTS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
September 30, June 30,
1996 1996
------------ ------------
ASSETS
- ------
Current assets:
Cash, including short-term investments $ 1,767 $ 1,512
Trade accounts receivable, net of,
allowance for doubtful accounts of
$1,302 and $784, respectively 27,450 31,741
Inventories 62,239 59,284
Other current assets 3,975 7,234
------------ ------------
Total current assets 95,431 99,771
------------ ------------
Property and equipment, at cost 51,335 50,686
Accumulated depreciation (24,796) (23,903)
------------ ------------
Property and equipment, net 26,539 26,783
------------ ------------
Other assets 610 751
Goodwill 41,014 41,274
------------ ------------
$ 163,594 $ 168,579
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $ 0 $ 3,270
Accounts payable 14,338 13,259
Accrued liabilities and other 13,929 17,222
------------ ------------
Total current liabilities 28,267 33,751
------------ ------------
Long-term debt 49,000 50,000
Deferred income taxes 1,230 1,230
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 19,669 19,371
Retained earnings 70,172 69,375
Cost of stock in treasury, 6,241,111 shares
and 6,349,607 shares, respectively (23,272) (23,676)
------------ ------------
Total stockholders' equity 85,097 83,598
------------ ------------
$ 163,594 $ 168,579
============ ============
TANDYCRAFTS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended September 30,
-------------------------------
1996 1995
----------- -----------
Net cash flows from operating activities $ 4,691 $ (1,361)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment, net,
excluding the effect of businesses acquired (868) (809)
----------- -----------
Net cash used for investing activities (868) (809)
----------- -----------
Cash flows from financing activities:
Sales of treasury stock to employee benefit
program, net 702 1,031
Borrowings (repayments) under bank credit
facility, net (4,270) 1,400
----------- -----------
Net cash provided (used) by
financing activities (3,568) 2,431
----------- -----------
Increase in cash, including short-term
investments 255 261
Balance, beginning of period 1,512 1,807
----------- -----------
Balance, end of period $ 1,767 $ 2,068
=========== ===========
TANDYCRAFTS, INC.
Condensed Consolidated Statement of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE><S><C>
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
ESOP forfeitures of 52,003 shares - (187) - (194) (381)
Sale of 160,499 shares of treasury stock
to employee benefit program - 485 - 598 1,083
Net income for three months ended
September 30, 1996 - - 797 - 797
-------- -------- -------- -------- --------
Balance, September 30, 1996 $ 18,528 $ 19,669 $ 70,172 $(23,272) $ 85,097
======== ======== ======== ======== ========
</TABLE>
TANDYCRAFTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary for a fair statement
of the Company's financial position as of September 30, 1996 and June 30, 1996,
and the results of operations and cash flows for the three-month periods ended
September 30, 1996 and September 30, 1995. The results of operations for the
three-month periods ended September 30, 1996 and 1995 are not necessarily
indicative of the results to be expected for the full fiscal year. The
condensed consolidated financial statements should be read in conjunction with
the financial statement disclosures contained in the Company's 1996 Annual
Report to Stockholders.
NOTE 2 - INVENTORIES
The components of inventories at September 30, 1996 consisted of the following
(in thousands):
Merchandise held for sale $ 46,024
Raw materials and work-in-process 16,215
--------
$ 62,239
========
NOTE 3 - EARNINGS PER SHARE
Net income per share is based upon the weighted average number of shares of
common stock and common stock equivalents outstanding during the periods. For
the three-month periods ended September 30, 1996 and 1995, the number of
weighted average shares and common stock equivalents is as follows (in
thousands):
Three Months Ended
September 30,
-----------------------
1996 1995
--------- ---------
Weighted average shares 12,198 11,769
Common stock equivalents - -
--------- ---------
Total weighted average common and
common equivalent shares 12,198 11,769
========= =========
NOTE 4 - STRATEGIC RESTRUCTURING AND CONSOLIDATION PROGRAM
In fiscal 1996, the Company adopted a strategic restructuring and consolidation
program. The primary components of this program included: (i) the sale of Cargo
Furniture and Accents, (ii) the sale or closure of Prestige Leather Creations,
David James Manufacturing, Brand Name Apparel and certain other individually
insignificant operations, (iii) the closure of 11 retail stores including two at
Sav-On Office Supplies, five at Joshua's Christian Stores and four at Tandy
Leather Company, (iv) the consolidation of certain functions within TWI of
Nocona Belt Company and Rivertown Button Company, which was relocated from
Houston, Minnesota to Fort Worth, Texas, (v) the consolidation, streamlining
and, in some cases, outsourcing of certain functions throughout various
operating units, and (vi) the retention of an outside consulting firm to assist
senior management in evaluating and developing the Company's retail concepts.
As a result of the adoption of the strategic restructuring and consolidation
program discussed above, the Company recorded restructuring charges of $18.3
million in fiscal 1996. In the quarter ended September 30, 1996, $339,000 of
the reserve initially recorded for lease obligations was reclassified to the
reserve for asset writedowns as a result of the assignment of leases to the
purchasers. The increase in the asset writedown reserve was necessary to cover
asset writedowns in excess of those originally anticipated by management.
During the quarter ended September 30, 1996, the Company closed one Tandy
Leather store which was initially targeted in the restructuring program. The
Company expects to complete the sale of Cargo during the first half of fiscal
1997.
The following table sets forth the accrual activity in the restructuring
reserve, which is included in current accrued liabilities in the September 30,
1996 balance sheet (in thousands):
<TABLE><S><C>
Specialty Specialty
Manufacturing Retail Corporate Total
------------- ---------- --------- ---------
Balance at June 30, 1996 $ 1,184 $ 439 $ - $ 1,623
Cash payments (269) (30) - (299)
Non-cash asset writedowns (339) - - (339)
------- ------- ------ -------
Balance at September 30, 1996 $ 576 $ 409 $ - $ 985
======= ======= ====== =======
</TABLE>
The above accruals are estimates based on the Company's judgment at this time.
Adjustments to the restructuring accrual may be necessary in the future based on
further development of restructuring related activitiescosts. Although no
additional restructuring plans are currently under consideration, the Company
continues to evaluate possible actions which are aimed at improving the
profitability and competitive position of the Company.
Revenues and operating losses (before restructuring charges) from separately
identifiable businesses targeted for sale or closure are set forth below by
segment (in thousands):
Three Months Ended September 30,
-------------------------------------------
1996 1995
-------------------- --------------------
Operating Operating
Income Income
Sales (loss) Sales (loss)
-------- -------- -------- --------
Specialty retail $ 5,126 $ 122 $ 4,700 $ 74
Specialty manufacturing 869 (3) 5,049 (530)
-------- -------- -------- --------
Total $ 5,995 $ 119 $ 9,749 $ (456)
======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
GENERAL
Tandycrafts, Inc. (the "Company") operates in two primary industry segments,
specialty retail and specialty manufacturing. The specialty retail group
consists of four distinct retail concepts: Tandy Leather Company, which sells
leathercraft and related products through 172 stores located in 45 states;
Joshua's Christian Stores, which sells inspirational books, music and gifts
through a chain of 72 stores located in ten states; Sav-On Office Supplies,
which sells office supplies and related products through a chain of 36 stores
located in eleven states; and Cargo Furniture and Accents, which sells a
proprietary line of solid wood furniture and decorative accessories through a
chain of 39 stores located primarily in regional shopping malls. The specialty
manufacturing segment is comprised of two divisions: Picture Frames and Framed
Art and TWI.
With the exception of historical information, the matters discussed herein are
forward-looking statements that involve risks and uncertainties that may cause
actual results to differ from such projections. These risks and uncertainties
include, but are not limited to, the performance of each operating unit,
relationships with certain key customers, commodity price fluctuations, product
demand, inventory fluctuations due to shifts in market demand and preferences,
the regulatory and trade environment, interest rate fluctuations, recessionary
factors, seasonality and other factors or risks indicated in filings with the
Securities and Exchange Commission.
The following table presents selected financial data for each significant
company or division comprising the Company's two primary industry segments for
the three-month periods ended September 30, 1996 and 1995 (in thousands):
<TABLE><S><C>
Three Months Ended September 30,
------------------------------------
1996 1995 % Increase (Decrease)
---------------- ----------------- --------------------
Operating Operating Operating
Income Income Income
Sales (loss) Sales (loss) Sales (loss)
------- ------ ------- ------- ------- ---------
Specialty retail:
- ----------------
Tandy Leather $ 9,558 $ (331) $10,262 $ 189 (6.9)% (275.1)%
Sav-On Office Supplies 9,455 562 7,545 59 25.3 852.5
Joshua's Christian Stores 5,828 (746) 7,070 (727) (17.6) (2.6)
Cargo Furniture & Accents 5,126 122 4,700 74 9.1 64.9
------- ------ ------- ------- ------- -------
Specialty retail 29,967 (393) 29,577 (405) 1.3 3.0
------- ------ ------- ------- ------- -------
Specialty manufacturing:
- -----------------------
Picture Frames and Framed Art 16,822 2,131 18,634 2,157 (9.7) (1.2)
TWI 10,112 938 9,089 1,109 11.3 (15.4)
Divested Units 869 (3) 5,049 (530) (82.8) 99.4
------- ------ ------- ------- ------- -------
Specialty manufacturing 27,803 3,066 32,772 2,736 (15.2) 12.1
------- ------ ------- ------- ------- -------
Total operations, excluding
corporate $57,770 $2,673 $62,349 $ 2,331 (7.4)% 14.7%
======= ====== ======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
For the quarter ended September 30, 1996, consolidated net sales decreased
$4,579,000, or 7.4% while operating income, excluding corporate, increased
$342,000 or 14.7% compared to the same period last 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 $390,000, or 1.3%, compared
to the same quarter last year. The specialty retail segment contributed 51.9%
of consolidated net sales in the quarter ended September 30, 1996 compared to
47.4% in the same quarter last year. The operating loss of this segment
decreased $12,000 or 3.0% for the three month period ended September 30, 1996
compared to the same period of the prior year.
Tandy Leather Retail
Tandy Leather Company's net retail sales decreased $704,000, or 6.9%, compared
to the same quarter last year with a decrease in same-store sales of 6.2%. The
decrease in sales reflects the continued downward trend in Southwest and western
fashion markets, as well as higher than normal store manager turnover during the
past year.
Tandy Leather Company had an operating loss of $331,000 for the quarter ended
September 30, 1996 compared to operating income of $189,000 for the same quarter
last year. The decrease in operating income is primarily a result of the
decrease in sales combined with a decrease in gross margin achieved during the
quarter. For the quarter ended September 30, 1996, gross profit decreased
$661,000, or 3.0 points as a percent of sales, compared to the same quarter of
the previous year primarily as a result of decreased sales and a change in the
sales mix. Selling, general and administrative expenses decreased approximately
$144,000 for the quarter when compared to the same quarter last year; however,
expenses as a percent of sales were up slightly due to the decrease in sales.
Sav-On Office Supplies
Sav-On Office Supplies achieved a $1,910,000, or 25.3%, increase in net sales
with two fewer stores than the same quarter last year. Same-store sales
increased 28.3% over the same quarter last year. The sales increases were
partially due to the addition of a line of PC printers and fax machines to the
merchandise assortment.
Sav-On's operating income increased $503,000, or 852.5%, for the quarter ended
September 30, 1996 compared to the same quarter last year. The increase in
operating income is principally a result of increased sales and efficiency gains
at both stores and administrative units. Selling, general and administrative
expenses as a percentage of sales decreased 5.5 percentage points due
principally to the increase in sales with constant levels of labor and occupancy
costs. Gross profit as a percent of sales for the quarter decreased compared to
the same quarter last year primarily due to the addition of the PC printers and
fax machines, which carry lower margins than the average of Sav-On's other
merchandise categories.
Joshua's Christian Stores
Joshua's net sales declined $1,242,000, or 17.6%, compared to the same quarter
last year, with same-store sales declining 19.7% for the quarter. The sales
decrease is attributable to significant price promotions offered in the prior
year which were not repeated this year and to reduced advertising in the current
quarter while Joshua's new management team developed a new marketing plan.
Despite the significant decrease in sales for the quarter, Joshua's operating
loss increased only $19,000, or 2.6%, from the same quarter last year. Gross
profit as a percent of sales for the current quarter increased significantly
compared to the percentage for the same quarter of the previous year due to the
decision not to repeat the unprofitable price promotions offered in the prior
year and to the realignment of the merchandise assortment in the stores to
"best-selling", higher margin products. Selling, general and administrative
expenses at Joshua's decreased slightly for the quarter ended September 30,
1996 compared to the same quarter of the prior year primarily due to the
decreased advertising in the current quarter.
Cargo Furniture & Accents
Net sales for Cargo increased $426,000, or 9.1%, compared to the same quarter
last year due to increased sales in the contract division of Cargo. Same-store
sales declines of 15.9% resulting from product availability problems with a
major supplier partially offset the increase in contract sales.
Operating income for Cargo increased $48,000, from $74,000 for the quarter ended
September 30, 1995, to $122,000 for the quarter ended September 30, 1996. The
increase in operating income is attributable to a slight decline in selling,
general and administrative expenses as a percentage of sales resulting from
increased sales without proportionate increases in expenses. Gross profit
percentage for Cargo for the quarter ended September 30, 1996 remained
relatively unchanged from that of the same period of last year.
SPECIALTY MANUFACTURING
Net sales for the specialty manufacturing segment decreased $4,969,000, or
15.2%, while operating income increased $330,000, or 12.1%, compared to the
quarter ended September 30, 1995. The decrease in sales reflects the closure or
divestiture of certain underperforming business units as part of the
restructuring program adopted in December 1995. Excluding divested operations,
net sales for the specialty manufacturing segment decreased only $789,000, or
2.8%. The specialty manufacturing segment contributed 48.1% of consolidated net
sales in the quarter ended September 30, 1996 compared to 52.6% in the same
quarter last year.
Picture Frames and Framed Art
The decrease in net sales for the Picture Frames and Framed Art division was
$1,812,000, or 9.7%, compared to the quarter ended September 30, 1995. The
decrease is primarily attributable to a shift in the timing of shipments to key
picture frame customers which occurred in the first quarter of fiscal 1996 to
the second quarter in fiscal 1997. Indicative of this shift in sales between
quarters is an increase in the backlog of open orders at Magee Company of
approximately $1,043,000, or 39.8%, at September 30, 1996 compared to the
balance at September 30, 1995.
Operating income for the Picture Frames and Framed Art division decreased 1.2%
from the quarter ended September 30, 1995 to $2,131,000. The decrease in
operating income for the quarter reflects the decrease in sales, partially
offset by increased gross margin percentages of this division due to increased
manufacturing efficiencies and a more profitable sales mix.
Tandy Wholesale International ("TWI")
Net sales for the TWI division, increased $1,023,000, or 11.3%, compared to the
same quarter last year. The increase in net sales reflects the sales of 1996
Olympic products by the Licensed Products Group and the increased wholesale
sales of Tandy Leather Manufacturing in the quarter ended September 30, 1996
compared to the same quarter of the previous year.
The TWI division's operating income decreased $171,000, or 15.4%, for the
quarter compared to the same quarter last year. Operating income of the
Licensed Products Group decreased 28% due principally to customer returns of
Olympic merchandise and severance costs absorbed during the quarter associated
with changes in management. Operating income at Tandy Leather Manufacturing
increased 56% primarily due to the increased sales of this unit.
Strategic restructuring and consolidation program
In fiscal 1996, the Company adopted a strategic restructuring and consolidation
program. The primary components of this program included: (i) the sale of Cargo
Furniture and Accents, (ii) the sale or closure of Prestige Leather Creations,
David James Manufacturing, Brand Name Apparel and certain other individually
insignificant operations, (iii) the closure of 11 retail stores including two at
Sav-On Office Supplies, five at Joshua's Christian Stores and four at Tandy
Leather Company, (iv) the consolidation of certain functions within TWI of
Nocona Belt Company and Rivertown Button Company, which was relocated from
Houston, Minnesota to Fort Worth, Texas, (v) the consolidation, streamlining
and, in some cases, outsourcing of certain functions throughout various
operating units, and (vi) the retention of an outside consulting firm to assist
senior management in evaluating and developing the Company's retail concepts.
As a result of the adoption of the strategic restructuring and consolidation
program discussed above, the Company recorded restructuring charges of $18.3
million in fiscal 1996. In the quarter ended September 30, 1996, $339,000 of
the reserve initially recorded for lease obligations was reclassified to the
reserve for asset writedowns as a result of the assignment of leases to the
purchasers. The increase in the asset writedown reserve was necessary to cover
asset writedowns in excess of those originally anticipated by management.
During the quarter ended September 30, 1996, the Company has closed one Tandy
Leather store which was initially targeted in the restructuring program. The
Company expects to complete the sale of Cargo during the first half of fiscal
1997.
The following table sets forth the accrual activity in the restructuring
reserve, which is included in current accrued liabilities in the September 30,
1996 balance sheet (in thousands):
<TABLE><S><C>
Specialty Specialty
Manufacturing Retail Corporate Total
------------- --------- --------- -------
Balance at June 30, 1996 $ 1,184 $ 439 $ - $ 1,623
Cash payments (269) (30) - (299)
Non-cash asset writedowns (339) - - (339)
-------- -------- ------- -------
Balance at September 30, 1996 $ 576 $ 409 $ - $ 985
======== ======== ======= =======
</TABLE>
The above accruals are estimates based on the Company's judgment at this time.
Adjustments to the restructuring accrual may be necessary in the future based on
further development of restructuring related activitiescosts. Although no
additional restructuring plans are currently under consideration, the Company
continues to evaluate possible actions which are aimed at improving the
profitability and competitive position of the Company.
Revenues and operating losses (before restructuring charges) from separately
identifiable businesses targeted for sale or closure are set forth below by
segment (in thousands):
Three Months Ended September 30,
------------------------------------------
1996 1995
------------------- -------------------
Operating Operating
Income Income
Sales (loss) Sales (loss)
------- -------- ------- --------
Specialty retail $ 5,126 $ 122 $ 4,700 $ 74
Specialty manufacturing 869 (3) 5,049 (530)
------- -------- ------- --------
Total $ 5,995 $ 119 $ 9,749 $ (456)
======= ======== ======= ========
Selling, general and administrative expenses
Consolidated selling, general and administrative expenses were 32.3% as a
percent of sales for the quarter ended September 30, 1996 compared to 33.5% for
the same quarter last year. In total dollars, selling, general and
administrative expenses decreased $2,251,000, or 10.8%, when compared to the
same quarter last year. The decrease in expenses was primarily due to the
reduction in expenses related to those companies closed or divested during
fiscal 1996 and to a change in the provisions of the Company's Employee Stock
Ownership Plan ("ESOP") which reduced the Company's matching contribution from
200% to 100% and allowed forfeited shares to be used to reduce future Company
contributions to the ESOP.
Depreciation and amortization
Consolidated depreciation and amortization decreased $153,000, or 10.0%, for the
quarter ended September 30, 1996 compared to the quarter ended September 30,
1995. The decrease is due primarily to the sale or write-down of equipment of
businesses closed or divested during fiscal 1996.
Interest expense, net
Net interest expense decreased $263,000, or 24.2%, for the quarter ended
September 30, 1996 compared to the same quarter last year. The decrease in
interest expense was due to a decrease in average borrowings during the quarter
when compared to the prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have come from cash flows from
operations, sales of treasury stock to employee benefit programs, and borrowings
under the Company's revolving credit facility. These funds have been used
primarily to finance acquisitions, purchase property and equipment, and finance
the growth in inventories and receivables.
During the quarter ended September 30, 1996, cash increased $255,000. Cash
provided by operating activities of $4,691,000 primarily resulted from a
decrease in receivables and an increase in accounts payable, partially offset by
an increase in inventories related mainly to the building of inventory for the
holiday season. Cash used for investing activities of $868,000 resulted from
capital expenditures for property and equipment. Cash of approximately
$3,568,000 was used by financing activities, primarily to reduce borrowings
under the Company's revolving credit facility, partially offset by the funding
of the Company's contribution to the Tandycrafts Employee Stock Ownership
Program with treasury stock.
The Company has a $60 million revolving credit facility with a group of banks.
The credit facility is a two-year revolving line of credit, renewable annually.
As part of the Company's restructuring and consolidation program adopted in
fiscal 1996, the banks agreed to extend the maturity date of the current
revolving credit facility to October 1, 1997. The Company is currently
negotiating the renewal of the credit facility with the banks. The Company has
agreed with the lending banks to reduce the commitment amount under the
revolving loan agreement from $60,000,000 to $50,000,000 by January 2, 1997.
The Company estimates that cash generated from the sale of assets contemplated
by the strategic restructuring program and cash flow from operations will enable
the Company to reduce the facility to $50,000,000 by January 2, 1997 and operate
within that commitment amount on a continuing basis. Actual results may differ
from this forward-looking projection. Please refer to the discussion of risk
factors herein.
Cash of approximately $868,000 was used for capital expenditures during the
quarter ended September 30, 1996. Planned capital expenditures for the
remainder of fiscal 1997 approximate $4,100,000 and are primarily targeted for
investments in the Picture Frames and Framed Art division and expansion of Sav-
On's store base. Current store expansion plans call for Sav-On to open up to
six new stores during the remainder of fiscal 1997. Management believes that
the Company's current cash position, its cash flows from operations and
available borrowing capacity will be sufficient to fund its current operations,
capital expenditures and current growth plans.
NEW ACCOUNTING STANDARDS
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which requires that long-lived assets held
and used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the net book value of the asset may not be
recoverable. The adoption of this standard had no impact on the Company's
financial position or results of operations.
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. A reserve for losses associated with these
alleged guarantees was established in fiscal 1996 and, based on the present
information with respect to about the rejected leases, management believes such
reserve is adequate to cover any liability the Company may have the Company's
liability under these alleged guarantees. Actual results may differ from this
forward-looking projection. The former subsidiary may reject further alleged
guaranteed leases with alleged guarantees, which may result in additional
potential liabilitylosses. Please refer to the risk factors discussion herein.
TANDYCRAFTS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits Description
-------- ----------------------------
10.14 Sixth Amendment to Revolving Credit and Term Loan Agreement
27 Financial Data Schedule
Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated October 22,
1996, which included the contents of a press release announcing
the unaudited results of operations for the three-month period
ended September 30, 1996.
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: November 14, 1996 By:/s/Michael J. Walsh
-----------------------
Michael J. Walsh
President, Chief Executive Officer
and Director
Date: November 14, 1996 By:/s/James D. Allen
-----------------------
James D. Allen
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tandycrafts,
Inc.'s September 30, 1996 Form 10-Q and is qualified in its entirety by
reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,767
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0
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</TABLE>
SIXTH AMENDMENT TO REVOLVING
CREDIT AND TERM LOAN AGREEMENT
------------------------------
This Sixth Amendment to Revolving Credit and Term Loan Agreement ("Sixth
Amendment") is made by and among TANDYCRAFTS, INC., a Delaware corporation
("Company"), CASUAL CONCEPTS, INC., a Texas corporation, THE DEVELOPMENT
ASSOCIATION, INC., a Texas corporation, SAV-ON, INC., a Texas corporation,
NOCONA BELT COMPANY, a Texas corporation, DAVID JAMES MANUFACTURING, INC., a
Texas corporation, BRAND NAME APPAREL, INC., a Texas corporation, 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.),
THE SUMITOMO BANK, LTD., CHICAGO BRANCH 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, Banks and Agent entered into
that certain First Amendment to Revolving Credit and Term Loan Agreement dated
December 3, 1993; and
WHEREAS, the Company, the Guarantors, Banks and Agent entered into that
certain Second Amendment To Revolving Credit and Term Loan Agreement dated
September 26, 1994; and
WHEREAS, the Company, Guarantors, Banks and Agent entered into that certain
Third Amendment to Revolving Credit and Term Loan Agreement dated December 31,
1994; and
WHEREAS, the Company, Guarantors, Banks and Agent entered into that certain
Fourth Amendment to Revolving Credit and Term Loan Agreement dated July 6, 1995;
and
WHEREAS, the Company, Guarantors, Banks and Agent entered into that certain
Fifth Amendment to Revolving Credit and Term Loan Agreement dated December 31,
1995; and
WHEREAS, the Company, Guarantors, Banks and Agent desire to amend the Loan
Agreement in certain respects; and
WHEREAS, capitalized terms used herein shall have the meaning assigned to
them in the Loan Agreement unless the context otherwise requires or provides.
NOW, THEREFORE, it is agreed by and among the Company, Guarantors, Banks
and Agent as follows:
1.
The Total Commitment shall be reduced to fifty million dollars
($50,000,000) and Exhibit A of the Loan Agreement shall be amended to read in
the form attached hereto effective as of January 2, 1997.
2.
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.
3.
Except as amended by the First Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment, the Fifth Amendment and this Sixth Amendment,
the Loan Agreement is ratified and confirmed and shall remain in full force and
effect.
4.
This Sixth Amendment shall be governed by and construed in accordance with
the laws of the State of Texas.
5.
Company agrees to pay all expenses incurred by Agent and Banks in
connection with the negotiation and preparation of this Sixth Amendment,
including reasonable attorney's fees.
6.
This Sixth Amendment may be executed in any number of multiple counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original, and all of which taken together
shall constitute one and the same agreement.
7.
Banks, Company, and Guarantors agree to be bound by the current Arbitration
Program of Agent which is incorporated by reference herein and is acknowledged
as received by the parties pursuant to which any and all disputes shall be
resolved by mandatory binding arbitration upon the request of any party.
8.
This Sixth Amendment shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns.
9.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
Executed to be effective as of October 31, 1996.
TANDYCRAFTS, INC., a Delaware
corporation
By:
---------------------------
Michael J. Walsh, President
COMPANY
CASUAL CONCEPTS, INC., a Texas
corporation
By:
---------------------------
Russell Price, Secretary
SAV-ON, INC., a Texas corporation
By:
---------------------------
Russell Price, Secretary
NOCONA BELT COMPANY, a Texas
corporation
By:
---------------------------
Russell Price, Secretary
DAVID JAMES MANUFACTURING,
INC., a Texas corporation
By:
---------------------------
Russell Price, Secretary
BRAND NAME APPAREL, INC.
a Texas corporation
By:
---------------------------
Russell Price, Secretary
THE DEVELOPMENT ASSOCIATION,
INC., a Texas corporation
By:
---------------------------
Russell Price, Secretary
PLC LEATHER COMPANY, a Nevada
corporation
By:
---------------------------
Russell Price, Secretary
TANDYARTS, INC., a Nevada
corporation
By:
---------------------------
Russell Price, Secretary
COLLEGE FLAGS AND
MANUFACTURING, INC.,
a South Carolina corporation,
By:
---------------------------
Russell Price, Secretary
GUARANTORS
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
(formerly First Interstate Bank of Texas, N.A.)
By:
---------------------------
Steve Wood, Senior Vice President
By:
---------------------------
John Peloubet, Vice President
THE SUMITOMO BANK, LTD.,
CHICAGO BRANCH
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
NBD BANK
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
BANKS
EXHIBIT A
---------
Commitment
Percentage
Banks Commitment (Rounded)
- ------- ---------- ----------
Wells Fargo Bank (Texas),
National Association $25,000,000 50%
The Sumitomo Bank, Ltd., $12,500,000 25%
Chicago Branch
NBD Bank, N.A. $12,500,000 25%
----------- ----
Total Commitment $50,000,000 100%
=========== ====
