<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 1, 1996 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
------------- TO --------------
0-24390
Commission file number ...................
TREND - LINES, INC.
.....................................................
(Exact name of registrant as specified in its charter)
Massachusetts 04-2722797
..................................... .........................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 American Legion Highway, Revere , Massachusetts 02151
......................................................................
(Address of principal executive office) (Zip Code)
(617) 853 - 0900
...................................................
(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.
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES OUTSTANDING JULY 1, 1996
----- -----------------------------------------
<S> <C>
Class A Common Stock, $.01 par value 6,252,965
Class B Common Stock, $.01 par value 3,193,943 *
</TABLE>
* Each share of Class B Common Stock is convertible into 1.5 shares of Class A
Common Stock.
1
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INDEX
<TABLE>
<CAPTION>
Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 1, 1996 (Unaudited) and March 2, 1996 3
Condensed Consolidated Statements of Operations
Three Months Ended June 1, 1996 and May 27,1995 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended June 1, 1996 and May 27, 1995 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
Part II - Other Information 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TREND-LINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 1, March 2,
ASSETS 1996 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $489 $436
Accounts receivable, net 9,525 8,319
Refundable income taxes 3,018 4,401
Inventories 71,101 68,885
Prepaid expenses and other current assets 5,722 5,492
-------- --------
Total current assets 89,855 87,533
-------- --------
PROPERTY AND EQUIPMENT, NET 13,197 12,815
OTHER ASSETS 396 310
-------- --------
$103,448 $100,658
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank credit facility $27,402 $18,483
Current portion of capital lease obligations 594 566
Accounts payable 24,442 30,476
Accrued expenses 6,448 6,602
-------- --------
Total current liabilities 58,886 56,127
-------- --------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 2,090 2,243
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A - Authorized - 20,000,000 shares
Issued and outstanding - 6,252,965 shares 62 62
at June 1, 1996 and March 2, 1996
Class B - Authorized - 5,000,000 shares
Issued and outstanding - 3,193,943 shares 32 32
at June 1, 1996 and March 2, 1996
Additional paid-in capital 41,316 41,316
Retained earnings 1,062 878
-------- --------
Total stockholders' equity 42,472 42,288
-------- --------
$103,448 $100,658
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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TREND-LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 1, May 27
1996 1995
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<S> <C> <C>
NET SALES $49,311 $37,376
COST OF SALES 32,895 23,246
------- -------
Gross Profit 16,416 14,130
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 15,696 12,507
------- -------
Income from operations 720 1,623
INTEREST EXPENSE, net of interest income 410 328
------- -------
Income before provision for income taxes 310 1,295
PROVISION FOR INCOME TAXES 126 524
------- -------
Net income $184 $771
======= =======
NET INCOME PER COMMON SHARE $0.02 $0.08
======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (1) 11,297 9,946
======= =======
(1) 1995 is adjusted to reflect a three-for-two stock
split of the Class A Common Stock on September 1,
1995 and a corresponding adjustment to the conversion
ratio of the Class B Common Stock.
See notes to condensed consolidated financial statements.
</TABLE>
4
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TREND-LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
June 1, May 27,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $184 $771
Adjustments to reconcile net income to net cash
used in operating activities -
Depreciation and amortization 433 319
Loss on retirement of property and equipment 2 -
Changes in current assets and liabilities-
Accounts receivable (1,206) (1,499)
Refundable income taxes 1,383 -
Inventories (2,216) (10,744)
Prepaid expenses and other current assets (230) 38
Accounts payable (6,034) (1,276)
Accrued expenses and other current liabilities (154) 1,293
-------- --------
Net cash used in operating activities (7,838) (11,098)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (817) (1,823)
Increase in other assets (86) (22)
-------- --------
Net cash used in investing activities (903) (1,845)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 0 17
Net borrowings under bank credit facility 8,919 12,917
Net borrowings (payments) on capital lease obligations (125) 832
-------- --------
Net cash provided by financing activities 8,794 13,766
-------- --------
NET INCREASE IN CASH 53 823
CASH, BEGINNING OF PERIOD 436 361
-------- --------
CASH, END OF PERIOD $489 $1,184
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for - Interest $280 $210
======== ========
Income Taxes $1 $714
======== ========
Supplemental Schedule of Noncash Investing and
Financing Activities:
Equipment acquired under capital lease obligations $0 $420
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
5
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TREND - LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- - ------------------------
The information set forth in these financial statements is unaudited and may be
subject to normal year end adjustments. In the opinion of management, the
information reflects all adjustments, which consist of normal recurring
accruals, that are considered necessary to present a fair statement of the
results of operations of Trend-Lines, Inc. (the Company) for the interim periods
presented. The operating results for the three months ended June 1, 1996 are not
necessarily indicative of the results to be expected for the fiscal year ending
March 1, 1997.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended March 2, 1996. Certain information in footnote disclosures
normally included in financial statements have been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
2. EARNINGS PER SHARE DATA
- - --------------------------
Net income per share for the three months ended June 1, 1996 and May 27, 1995 is
computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. Common
stock equivalents are calculated using the treasury stock method and consist of
common stock issuable upon the exercise of outstanding stock options.
Outstanding shares and options have been adjusted to reflect a three-for-two
split of the Class A Common Stock (Note 3) and a corresponding adjustment to the
conversion ratio of Class B Common Stock.
3. STOCK SPLIT
- - --------------
In August, 1995, the Board of Directors approved a three-for-two stock split of
the Class A Common Stock effected in the form of a stock dividend. The record
date for the stock split was August 24, 1995 and the dividend was paid on
September 1, 1995. The stock split has been retroactively reflected in the
accompanying consolidated statements and notes for all periods presented.
4. BANK CREDIT FACILITY
- - -----------------------
As of March 2, 1996, the Company was in violation of certain financial
covenants. The covenants were subsequently waived for the fiscal year ended
March 2, 1996, and the enforcement of these financial covenants was suspended by
the bank for a period not to extend
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TREND-LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
beyond August 15, 1996. In addition, the Company agreed to certain other
conditions, including a monthly fee of one-eighth of one percent of the
commitment payable through July 1996, a reduction in the borrowing base formula
and interest on outstanding borrowings at the bank's base rate plus 2%.
On July 3, 1996, the Company entered into a new, three-year revolving secured
credit facility with another institution, pursuant to which the Company may
borrow a maximum of $40 million based on a borrowing formula related to
inventory levels, as defined. The facility bears interest at the bank's
reference rate plus .75% or LIBOR plus 2.25%. A commitment fee of .375% per year
of the average unused commitment amount, as defined, is payable monthly.
5. RESTRUCTURING CHARGE
- - -----------------------
In the fourth quarter of fiscal 1995, the Company recorded a restructuring
charge of approximately $1.4 million, representing the costs associated with
reorganizing its operations. These costs include a $954,000 charge for the rent
and related expenses for closing 12 retail store locations and the severance and
related benefits for terminated employees. Additionally, $443,000 was charged
for the consolidation of the Company's distribution centers.
As of June 1, 1996, 8 retail store locations were closed and approximately
$234,000 was charged against the restructuring reserve for store closing related
activities. In addition, approximately $166,000 associated with the
consolidation of the Company's distribution centers was also charged against the
restructuring reserve.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- - ---------------------
Net sales for the first quarter of fiscal 1996 increased by $11.9 million, or
31.9%, from $37.4 million for the first quarter of fiscal 1995 to $49.3 million.
Net catalog sales for the first quarter of fiscal 1996 increased $2.1 million or
12.2%, from $16.8 million for the first quarter of fiscal 1995 to $18.9 million
for the first quarter of fiscal 1996, while retail sales increased $9.9 million
or 48.0% as compared to the first quarter of fiscal 1995. The increase in net
catalog sales was primarily attributable to the Trend-Lines catalog being more
promotional and moderate expansion of the Company's Golf Day catalog
circulation. The revenue growth of retail stores is attributable to the
expansion of the Company's retail store base, which expanded over 42% from 103
locations at the end of the first quarter of fiscal 1995 to 147 locations at the
end of the first quarter of fiscal 1996. Comparable net store sales for
Woodworkers Warehouse/Post Tool stores and Golf Day stores for the first
quarter of fiscal 1996 increased by 5.8% as compared to the first quarter of
fiscal 1995.
Gross profit for the first quarter of fiscal 1996 increased 16.2% from $14.1
million for the first quarter of fiscal 1995 to $16.4 million for the first
quarter of fiscal 1996. As a percentage of net sales, gross profit decreased
from 37.8% of net sales for the first quarter of fiscal 1995 to 33.3% of net
sales in the first quarter of fiscal 1996. The decrease in the Company's gross
profit percentage is primarily the result of promotional catalog activity and
the Company's changing sales mix, which is caused by the increase in retail
sales as a percentage of total sales (retail store sales generally have lower
overall gross margins than catalog sales).
Selling, general and administrative expenses for the first quarter of fiscal
1996 increased 25.5%, or $3.2 million from $12.5 million for the first quarter
of fiscal 1995 to $15.7 million for the first quarter of fiscal 1996. As a
percentage of net sales, selling, general and administrative expenses decreased
from 33.5% of net sales in the first quarter of fiscal 1995 to 31.8% of net
sales in the first quarter of fiscal 1996. The decrease in selling, general and
administrative expenses as a percentage of net sales is primarily attributable
to a decrease in advertising expenses as a percentage of net sales, lower
operating costs associated with retail stores generally as compared to catalogs
and the allocation of these expenses over a higher volume of net sales (retail
store sales generally have lower overall gross margins than catalog sales). The
dollar increases in selling, general and administrative expenses are primarily
related to the Company's continuing retail expansion.
As the result of the above factors, income from operations for the first quarter
of fiscal 1996 decreased by $.9 million, or 55.6%, from $1.6 million in the
first quarter of fiscal 1995 to $.7 million in the first quarter of fiscal 1996.
As a percentage of net sales, income from operations
8
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decreased from 4.3% of net sales in the first quarter of fiscal 1995 to 1.5% of
net sales in the first quarter of fiscal 1996.
Interest expense, net of interest income, for the first quarter of fiscal 1996
increased by $82,000 from $328,000 in the first quarter of fiscal 1995 to
$410,000 in the first quarter of fiscal 1996. The increase in interest expense
is attributable to the increase in the Company's bank credit facility, which was
used to partially fund the expansion of the Company's retail stores.
Liquidity and Capital Resources
- - -------------------------------
The Company's working capital decreased by $.4 million, from $31.4 million as of
March 2, 1996 to $31.0 million as of June 1, 1996. The decrease resulted
primarily from a $2.2 million increase in inventories, a $1.2 million increase
in accounts receivable and a $6.0 million decrease in accounts payable, which
was offset by a $8.9 million increase in bank debt, primarily to support the
Company's expanding retail operations and a $1.4 million decrease in refundable
income taxes. The decrease in working capital was funded primarily with
increases in Company bank debt and the use of refundable income taxes.
The Company anticipates that in fiscal 1996, it will continue to invest in
leasehold improvements and equipment to support its retail store expansion
plans. In addition, the Company's expansion plans will require the use of cash
to fund increased inventories associated with the operation of additional retail
stores. The Company opened nine stores and closed three stores in the first
quarter. For fiscal 1996, the Company currently plans to open approximately 20
to 40 retail stores, including those opened in the first quarter.
The Company believes that the cash generated from operating activities, trade
credit and available bank borrowings will be sufficient to fund its operations
and its retail store expansion program for the next twelve months.
Impact of Inflation
- - -------------------
The Company does not believe that inflation has had a material impact on its net
sales or results of operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- - --------------------------------------------------------------------------------
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the
9
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Company; (ii) the Company's ability to open the planned number of stores will
depend upon a number of other factors, including securing desirable locations,
negotiating leases with acceptable terms, and hiring, training and retraining
qualified personnel; (iii) the Company's plans and results of operations will be
affected by the Company's ability to manage its growth and inventory; (iv) the
Company's tool and golf businesses are highly competitive and the entrance of
new competitors into or the expansion of the operations by existing competitors
in the Company's markets and other changes in the tool or golf retail climate
could adversely affect the Company's plans and results of operations; and (v)
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
10
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TREND - LINES, INC.
Part II - Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - not applicable
(b) Reports on Form 8-K - not applicable
11
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SIGNATURE
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.
TREND-LINES, INC
----------------
Registrant
Date: July 15, 1996 /s/ STANLEY D. BLACK
-------------------------------
Stanley D. Black
(President and Chief Executive
Officer)
/s/ KARL P. SNIADY
-------------------------------
Karl P. Sniady
(Executive Vice President,
Chief Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-01-1997 MAR-02-1996
<PERIOD-START> MAR-03-1996 MAR-01-1995
<PERIOD-END> JUN-01-1996 MAR-02-1996
<CASH> 489 436
<SECURITIES> 0 0
<RECEIVABLES> 9,525 8,319
<ALLOWANCES> 0 0
<INVENTORY> 71,101 68,885
<CURRENT-ASSETS> 89,855 87,533
<PP&E> 13,197 12,815
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 103,448 100,658
<CURRENT-LIABILITIES> 58,886 56,127
<BONDS> 0 0
0 0
0 0
<COMMON> 94 94
<OTHER-SE> 42,378 42,194
<TOTAL-LIABILITY-AND-EQUITY> 103,448 100,658
<SALES> 49,311 174,795
<TOTAL-REVENUES> 49,311 174,795
<CGS> 32,895 117,447
<TOTAL-COSTS> 32,895 117,447
<OTHER-EXPENSES> 15,696 61,242
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 410 1,654
<INCOME-PRETAX> 310 (5,548)
<INCOME-TAX> 126 (2,229)
<INCOME-CONTINUING> 184 (3,319)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 184 (3,319)
<EPS-PRIMARY> .02 (.33)
<EPS-DILUTED> 0 0
</TABLE>
