<PAGE>
UNITED STATES
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 NOVEMBER 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 -----------------
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 JANUARY 7, 1997
-------------- --------------------------------------------
<S> <C> <C>
Class A Common Stock, $.01 par value 6,139,754
Class B Common Stock, $.01 par value 4,750,026 *
</TABLE>
* Each share of Class B Common Stock is convertible into a share of Class A
Common Stock.
1
<PAGE>
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
November 30, 1996 (Unaudited) and March 2, 1996 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended November 30, 1996
and November 25,1995 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended November 30, 1996 and November 25,
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 8-11
Part II - Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TREND-LINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(Unaudited)
November 30, March 2,
ASSETS 1996 1996
------------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 369 $ 436
Accounts receivable, net 11,736 8,319
Refundable and prepaid income taxes 1,561 4,401
Inventories 77,107 68,885
Prepaid expenses and other current assets 6,934 5,492
-------- --------
Total current assets 97,707 87,533
-------- --------
PROPERTY AND EQUIPMENT, NET 13,564 12,815
OTHER ASSETS 622 310
-------- --------
$111,893 $100,658
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank credit facility $ 34,348 $ 18,483
Current portion of capital lease obligations 618 566
Accounts payable 26,464 30,476
Accrued expenses 6,113 6,602
-------- --------
Total current liabilities 67,543 56,127
-------- --------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 1,774 2,243
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A - Authorized - 20,000,000 shares
Issued - 6,299,754 shares and 6,252,965 62 62
shares at November 30, 1996 and March 2, 1996, respectively
Class B - Authorized - 5,000,000 shares
Issued and outstanding - 4,750,026 shares and 4,790,915
shares at November 30, 1996 and March 2, 1996, respectively 48 48
Additional paid-in capital 41,310 41,300
Retained earnings 1,927 878
-------- --------
Less: 160,000 Class A shares held in treasury stock at
November 30,1996, at cost (771) -
-------- --------
Total stockholders' equity 42,576 42,288
-------- --------
$111,893 $100,658
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
TREND-LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
(Unaudited)
Three months ended Nine months ended
---------------------------------------- -----------------
November 30, November 25, November 30, November 25,
1996 1995 1996 1995
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
NET SALES $49,100 $40,061 $145,238 $113,896
COST OF SALES 33,083 26,329 97,582 73,149
------- ------- -------- --------
Gross Profit 16,017 13,732 47,656 40,747
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 14,249 12,208 44,175 35,506
------- ------- -------- --------
Income from operations 1,768 1,524 3,481 5,241
INTEREST EXPENSE, net of interest income 693 463 1,718 1,428
------- ------- -------- --------
Income before provision for income taxes 1,075 1,061 1763 3,813
PROVISION FOR INCOME TAXES 435 430 714 1,537
------- ------- -------- --------
Net income $ 640 $ 631 $ 1,049 $ 2,276
======= ======= ======== ========
NET INCOME PER COMMON SHARE $0.06 $0.06 $0.09 $0.22
======= ======= ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,305 11,201 11,294 10,396
======= ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
TREND-LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(Unaudited) Nine Months Ended
------------------
November 30, November 25,
1996 1995
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,049 $ 2,276
Adjustments to reconcile net income to net cash
used in operating activities -
Depreciation and amortization 1,292 1,115
Gain on sale of property and equipment (18) -
Changes in current assets and liabilities-
Accounts receivable (3,417) (4,385)
Refundable and prepaid income taxes 2,840 -
Inventories (8,222) (16,443)
Prepaid expenses and other current assets (1,442) (3,061)
Accounts payable (4,012) (1,958)
Accrued expenses and other current liabilities (489) 2,212
-------- --------
Net cash used in operating activities (12,419) (20,244)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,023) (5,121)
Increase in other assets (312) (521)
-------- --------
Net cash used in investing activities (2,335) (5,642)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 19,579
Net proceeds from exercise of stock options 10 -
Net borrowings under bank credit facility 15,865 6,754
Net borrowings (payments) under capital lease obligations (417) 1,095
Payments to acquire treasury stock (771) -
-------- --------
Net cash provided by financing activities 14,687 27,428
-------- --------
NET INCREASE (DECREASE) IN CASH (67) 1,542
CASH, BEGINNING OF PERIOD 436 361
-------- --------
CASH, END OF PERIOD $ 369 $ 1,903
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for - Interest $ 1,220 $ 1,372
======== ========
- Income Taxes $ 170 $ 3,266
======== ========
Supplemental Schedule of Noncash Investing and
Financing Activities:
Equipment acquired under capital lease obligations $ - $ 715
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
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 nine
months ended November 30, 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 common share for the nine months ended November 30, 1996 and
November 25, 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 and
Class B Common Stock (Note 3).
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. In July 1996, the Board of Directors approved a
corresponding three-for-two stock split of the Class B Common Stock
effected in the form of a stock dividend. The stock splits have been
retroactively reflected in the accompanying condensed consolidated
statements and notes for all periods presented.
6
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TREND-LINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. BANK CREDIT FACILITY
-----------------------
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 Company's option, 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.
As of November 30, 1996, the Company had approximately $34.3 million of
borrowings outstanding and approximately $1.0 million of letters of credit
outstanding. The Company had approximately $4.7 million in available
borrowings under this facility.
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 November 30, 1996, 12 retail store locations were closed and
approximately $559,000 was charged against the restructuring reserve for
store closing related activities. In addition, approximately $384,000
associated with the consolidation of the Company's distribution centers
was also charged against the restructuring reserve. There were no non-cash
adjustments to the accrual during the nine months ended November 30, 1996.
6. TREASURY STOCK
------------------
In November 1996, the Company's Board of Directors approved a stock
repurchase plan, whereby the Company may purchase up to 500,000 shares of
common stock at fair market value, to be used for future Stock Option
programs, investment and / or other corporate purposes. The treasury stock
represents shares purchased under this program.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Net sales for the third quarter of fiscal 1996 increased by $9.0 million,
or 22.6%, from $40.1 million for the third quarter of fiscal 1995 to $49.1
million for the third quarter of fiscal 1996. Net catalog sales for the
third quarter of fiscal 1996 decreased $1.7 million or 10.4%, from $16.4
million for the third quarter of fiscal 1995 to $14.7 million for the third
quarter of fiscal 1996, while retail sales increased $10.7 million or
45.1% as compared to the third quarter of fiscal 1995. The decrease in net
catalog sales was primarily caused by a reduced response rate for the
Trend-Lines catalog, which was partially offset by higher sales attributed
to increased circulation for the Golf Day catalog. Also the Company's
opening of retail stores in areas previously only serviced by its catalogs
has resulted in a decrease in the Company's catalog sales in those areas.
The Company believes that the expansion of its retail store operations will
continue to result in a decrease in its catalog sales. The revenue growth
of retail stores was attributable to a more promotional pricing strategy
and the expansion of the Company's retail store base, which expanded 16.7%
from 126 locations at the end of the third quarter of fiscal 1995 to 147
locations at the end of the third quarter of fiscal 1996. Comparable net
store sales for Woodworkers Warehouse / Post Tool stores and Golf Day
stores for the third quarter of fiscal 1996 increased by 25.3% as compared
to the third quarter of fiscal 1995.
Net sales for the first nine months of fiscal 1996 increased by $31.3
million, or 27.5%, from $113.9 million for the first nine months of fiscal
1995 to $145.2 million for the first nine months of fiscal 1996.
Comparable net store sales for Woodworkers Warehouse / Post Tool Stores and
Golf Day for the first nine months of fiscal 1996 increased by 17.1% as
compared to the first nine months of fiscal 1995. Net catalog sales for
the first nine months of fiscal 1996 decreased $.3 million , or .7%, from
$48.3 million for the first nine months of fiscal 1995 to $48.0 million for
the nine months of fiscal 1996, while retail sales increased $31.6 million,
or 48.2%, as compared to the first nine months of fiscal 1995. The
decrease in net catalog sales was primarily attributable to the Trend-Lines
catalog lower third quarter response rate, which was largely offset by the
moderate expansion of the Company's Golf Day catalog circulation.
Gross profit for the third quarter of fiscal 1996 increased 16.6% from
$13.7 million for the third quarter of fiscal 1995 to $16.0 million for the
third quarter of fiscal 1996. As a percentage of net sales, gross profit
decreased 1.7% from 34.3% of net sales for the third quarter of fiscal
1995 to 32.6% of net sales in the third quarter of fiscal 1996. The
decrease in the Company's gross profit percentage was the result of more
promotional catalog activity and the Company's changing sales mix, which
was caused by the increase in retail sales as a percentage of total sales.
The Company's retail store sales generally have lower overall gross margins
than catalog sales.
Gross profit for the first nine months of fiscal 1996 increased 17.0% from
$40.7 million for the first nine months of fiscal 1995 to $47.7 million for
the first nine months of fiscal 1996. As a percentage of net sales, gross
profit decreased 3.0% from 35.8% of net sales for first nine months
8
<PAGE>
of fiscal 1995 to 32.8% of net sales for the first nine months of fiscal
1996. The decrease in the Company's gross profit percentage was primarily
the result of more promotional catalog activity and the Company's changing
sales mix.
Selling, general and administrative expenses for the third quarter of
fiscal 1996 increased 16.7%, or $2.0 million, from $ 12.2 million for the
third quarter of fiscal 1995 to $14.2 million for the third quarter of
fiscal 1996. As a percentage of net sales, selling, general and
administrative expenses decreased 1.5% from 30.5% of net sales in the third
quarter of fiscal 1995 to 29.0% of net sales in the third quarter of fiscal
1996. Selling, general and administrative expenses increased in dollar
terms and decreased as a percentage of net sales due primarily to the
Company's continuing retail expansion. The Company's retail stores
generally have lower selling, general and administrative expenses as a
percentage of sales than catalog operations.
Selling, general and administrative expenses for the first nine months of
fiscal 1996 increased 24.4%, or $8.7 million, from $35.5 million for the
first nine months of fiscal 1995 to $44.2 million for the first nine months
of fiscal 1996. As a percentage of net sales, selling, general and
administrative expenses decreased .8% from 31.2% of net sales for the first
nine months of fiscal 1995 to 30.4% of net sales for the first nine months
of fiscal 1996. Selling, general and administrative expenses increased in
dollar terms and decreased as a percentage of net sales due primarily to
the Company's continuing retail expansion. The Company's retail stores
generally have lower selling, general and administrative expenses as a
percentage of sales than catalog operations.
As the result of the above factors income from operations for the third
quarter of fiscal 1996 increased by $.3 million, or 16.0%, from $1.5
million in the third quarter of fiscal 1995 to $1.8 million in the third
quarter of fiscal 1996. As a percentage of net sales, income from
operations decreased .2% from 3.8% of net sales in the third quarter of
fiscal 1995 to 3.6% of net sales in the third quarter of fiscal 1996.
As the result of the above factors income from operations for the first
nine months of fiscal 1996 decreased $1.7 million, or 33.6% from $5.2
million in the first nine months of fiscal 1995 to $3.5 million in the
first nine months of fiscal 1996. As a percent of net sales, income from
operations decreased 2.2% from 4.6% of net sales in the first nine months
of 1995 to 2.4% of the net sales in the first nine months of fiscal 1996.
Interest expense, net of interest income, for the third quarter of fiscal
1996 increased by $230,000 from $463,000 in the third quarter of fiscal
1995 to $693,000 in the third quarter of fiscal 1996. The increase in
interest expense was attributable to a higher borrowing base and interest
rate.
Interest expense, net of interest income, for the first nine months of
fiscal 1996 increased by $.3 million from $1.4 million in the first nine
months of fiscal 1995 to $1.7 million in the first nine months of fiscal
1996, caused by the increased interest rate.
9
<PAGE>
Liquidity and Capital Resources
--------------------------------
The Company's working capital decreased by $1.2 million, from $31.4 million
as of March 2, 1996 to $30.2 million as of November 30, 1996. During the
first nine months of fiscal 1996, net cash used in operating activities was
approximately $12.4 million, net cash used in investing activities was
approximately $2.3 million and net cash provided from financing activities
was approximately $14.7 million. The net cash used in operating activities
resulted primarily from $2.3 million provided by net income and
depreciation and amortization, $2.8 million provided from income tax
refunds, offset by a combined increase of $13.1 million in inventories,
accounts receivable and prepaid expenses and other current assets,
associated with retail store expansion, and also offset by a decrease in
accounts payable and accrued expenses of $4.5 million. The net cash used
in investing activities was primarily related to purchases of property and
equipment required for the Company's retail expansion. During the first
nine months of fiscal 1996, the net cash provided from financing activities
was primarily attributable to $15.9 million in net borrowings under the
Company's bank credit facility, offset by $.8 million in payments to
acquire treasury stock and $.4 million in payments under capital leases
obligations.
The Company anticipates that for the remainder of 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 three stores
and closed one store in the third quarter. For the remainder of fiscal
1996, the Company currently plans to open approximately 25 to 30 retail
stores, including the 14 stores opened in the last three quarters.
The amount available under the credit facility is $40.0 million, of which
$35.3 million (including letters of credit totaling approximately $1.0
million) was outstanding as of November 30, 1996.
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, however, there can be no assurance that this will be the case. See
"Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995."
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
----
10
<PAGE>
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
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.
11
<PAGE>
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
12
<PAGE>
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: January 9, 1997 /s/ Stanley D. Black
-------------------------
Stanley D. Black
(Chief Executive Officer)
/s/ Karl P. Sniady
-------------------------
Karl P. Sniady
(Executive Vice President,
Chief Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> MAR-01-1997 MAR-02-1996
<PERIOD-START> MAR-03-1996 MAR-01-1995
<PERIOD-END> NOV-30-1996 MAR-02-1996
<CASH> 369 436
<SECURITIES> 0 0
<RECEIVABLES> 11,736 8,319
<ALLOWANCES> 0 0
<INVENTORY> 77,107 68,885
<CURRENT-ASSETS> 97,707 87,533
<PP&E> 13,564 12,815
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 111,893 100,658
<CURRENT-LIABILITIES> 67,543 56,127
<BONDS> 0 0
0 0
0 0
<COMMON> 110 110
<OTHER-SE> 42,466 42,178
<TOTAL-LIABILITY-AND-EQUITY> 111,893 100,658
<SALES> 145,238 174,795
<TOTAL-REVENUES> 145,238 174,795
<CGS> 97,582 117,447
<TOTAL-COSTS> 97,582 117,447
<OTHER-EXPENSES> 44,175 61,242
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,718 1,654
<INCOME-PRETAX> 1,763 (5,548)
<INCOME-TAX> 714 (2,229)
<INCOME-CONTINUING> 1,049 (3,319)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,049 (3,319)
<EPS-PRIMARY> .09 (.33)
<EPS-DILUTED> 0 0
</TABLE>
