<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
TANDYCRAFTS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
------------------
1999 1998
--------- --------
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
TANDYCRAFTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
TANDYCRAFTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
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 $ - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
TANDYCRAFTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained Treasury
stock capital earnings stock Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
As of June 30 (in thousands): 1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
Note 8 - Accrued Liabilities and Other
Accrued liabilities and other consisted of the following at June 30 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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
<PAGE>
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):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
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)
======== ======== ========
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at June 30 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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
<PAGE>
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):
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
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)
======== ======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
Year ended June 30, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Rentals:
Minimum...................................... $ 5,280 $ 7,298 $ 8,622
Contingent (percentage of sales)............. 20 20 70
-------- -------- --------
$ 5,300 $ 7,318 $ 8,692
======== ======== ========
</TABLE>
Minimum rental commitments for noncancellable leases at June 30, 1999 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Year ended June 30, Leases Leases
-------- --------
<S> <C> <C>
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
========
</TABLE>
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
<PAGE>
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
<PAGE>
A summary of stock option activity under these plans follows:
<TABLE>
<CAPTION>
Weighted -
Average
Exercise
Shares Price
----------- -----------
<S> <C> <C>
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
===========
</TABLE>
A summary of stock options outstanding and exercisable at June 30, 1999 follows:
<TABLE>
<CAPTION>
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
- --------------------- ----------- ------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$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
</TABLE>
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
<PAGE>
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):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
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)
</TABLE>
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
<PAGE>
Segment information for each of the three years in the period ended June
30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 Frames
---- and Office Home Divested
Wall Decor Supplies Furnishings Gifts Operations Consolidated
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
1998 Frames
---- and Office Home Divested
Wall Decor Supplies Furnishings Gifts Operations Consolidated
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
============ ============ ============= ============ ============ ============
</TABLE>
35
<PAGE>
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:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------- ------------------- ------------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Item 9. Changes In and Disagreements With Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure
- --------------------
None.
36
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Schedule II
TANDYCRAFTS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In thousands)
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
40
