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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For fiscal year ended March 1, 1997 or
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[ ] 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 Number: 0-24390
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Trend-Lines, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2722797
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
135 American Legion Highway, Revere, Massachusetts 02151
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(Address of Principal Executive Offices) (Zip Code)
(617) 853-0900
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Rule
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 the
Form 10-K. [ X ]
The aggregate market value of the registrant's Class A Common Stock, $.01
par value, held by non-affiliates of the registrant as of May 2, 1997 was
$55,715,940 based on the closing price of $5.25 on that date on the Nasdaq
National Market. As of May 2, 1997, 5,862,534 shares of the registrant's Class A
Common Stock, $.01 par value, were outstanding, and 4,750,026 shares of the
registrant's Class B Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of
directors, which is expected to be filed within 120 days after the end of the
registrant's fiscal year, are incorporated by reference in Part III of this
Report.
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PART I
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ITEM 1. BUSINESS
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Except for the historical information contained herein, the discussion in
this Report and any document incorporated herein by reference contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, strategies, objectives, expectations and
intentions. The cautionary statements made in the Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Safe Harbor
Statement under the Private Securities Litigation Reform Act of 1995" should be
read as being applicable to all forward-looking statements wherever they appear.
The Company's actual results could differ materially from those discussed or
incorporated herein. Factors that could cause or contribute to such differences
include those discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations as well as those discussed elsewhere herein
or the documents incorporated herein by reference.
Trend-Lines, Inc. (the "Company") is a specialty retailer of power and hand
tools and accessories, as well as golf equipment and supplies. The Company was
formed in 1981, and in 1983 the Company began mailing its Trend-Lines catalog
and opened a Woodworkers Warehouse outlet store in its distribution center. The
Company opened its first Woodworkers Warehouse retail store in 1986 and as of
March 1, 1997, operated 96 Woodworkers Warehouse stores. In January 1995, the
Company further expanded its tool retail operations by acquiring 17 Post Tool
stores and a distribution center for those stores and as of March 1, 1997,
operated 23 Post Tool stores. The Company purchased the Golf Day name and
mailing list in 1989, mailed its first Golf Day catalog in 1990, opened a Golf
Day outlet store in its distribution center in January 1991 and, as of March 1,
1997, operated 40 Golf Day stores. All of the Company's Woodworkers Warehouse
and Golf Day retail stores are located in the Northeast and Mid-Atlantic
regions. The Company's 23 Post Tool stores are located in California except for
one store located in Nevada.
The Company was incorporated in Massachusetts in 1981. The principal
executive offices of the Company are located at 135 American Legion Highway,
Revere, Massachusetts 02151, and its telephone number is (617) 853-0900. As
used herein, the term Company refers to Trend-Lines, Inc. and its wholly owned
subsidiary, Post Tool, Inc.
THE WOODWORKING TOOL INDUSTRY
According to the "Woodworking in America"/TM/ survey sponsored in 1995 by
the American Woodworker Magazine (the "Woodworking Survey"), approximately 10%
of the United States adult population, or nearly 18.6 million people, are
involved in woodworking activities, spending more than $6.3 billion annually on
equipment and accessories used specifically for woodworking projects. Major
items in this category include power tools; wood finishes; hand tools; blades,
bits and cutters; glue and adhesives; abrasives; sharpening equipment; books and
other equipment and supplies. Approximately 40% of the total amount spent, or
$2.6 billion, is spent on power tools.
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Woodworkers range from home workshop enthusiasts to professionals involved
in a wide variety of activities, including home construction and remodeling,
cabinet and furniture making and other woodworking projects. More advanced
woodworkers participate in activities that require a greater skill level, such
as cabinet making, architectural woodworking, furniture making, millwork and
veneering. According to the Woodworking Survey, woodworkers have been involved
in woodworking an average of approximately fifteen years, and the typical
woodworker spends an average of more than six hours per week in the workshop.
Further, as interest and/or skill level increase, factors such as a wide variety
and selection of merchandise and availability of hard-to-find items and well-
known brand name products become more important to the woodworking customer.
THE GOLF INDUSTRY
Some 25 million Americans played 490 million rounds of golf in 1996. This
was a 3% increase in the number of golfers that participated in the sport and a
5.5% increase in the number of rounds played, according to the National Golf
Foundation's 1996 report on golf participation in the United States. The game's
growing popularity among juniors has been fueled by Tiger Woods; women represent
the fastest growing golf segment. Major items in this category include clubs,
bags, hand carts, balls, training aids, golf shoes, apparel, accessories and
gift items.
BUSINESS STRATEGY
The Company's business strategy is designed to enhance the Company's
position as a leading specialty retailer of power and hand tools and
accessories, as well as golf equipment and to maximize the Company's future
growth. The key elements of the Company's business strategy are as follows:
. EXPANSION OF RETAIL STORE OPERATIONS. The Company plans to continue to
expand its retail store operations by opening approximately 40 to 50
stores in fiscal 1997. The Company intends to continue to focus its
retail store openings in existing markets or markets in close proximity
to those in which it is currently operating in order to take advantage of
its distribution system. The Company may also consider expansion of its
retail store operations through strategic acquisitions.
. COMPLEMENTARY STORE AND CATALOG OPERATIONS. The strong name recognition
of the Company's Trend-Lines and Golf Day catalogs, combined with the
customer base and market knowledge that have resulted from its catalog
operations, is facilitating the expansion of the Company's retail stores.
Management uses catalog information, among other things, in identifying
new store markets and determining the appropriate product mix for its
retail stores.
. COST-EFFECTIVE OPERATIONS. The Company consistently strives to lower the
cost of its operations. In operating its tool and golf businesses in the
Northeast and Mid-Atlantic regions, the Company uses a single facility
with common management and common or
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parallel information, telemarketing and distribution systems, in order
to achieve operational efficiencies. The Company also has a distribution
center located in Hayward, California for its Post Tool operations which
has been integrated into the Company's management information systems.
. BREADTH AND DEPTH OF PRODUCT SELECTION. The Company offers breadth and
depth of product selection, including many hard-to-find items, and high
quality brand name and private label merchandise.
. LOW PRICES AND MATCHING PRODUCT/PRICE GUARANTEE. The Company's
competitive pricing strategy features everyday low prices combined with
special sales and promotions, and a matching product/price guarantee on
any identical product sold by a competitor.
. EXPERT CUSTOMER SERVICE. The Company provides its customers with expert
customer service through experienced, trained personnel who have
extensive knowledge about the products sold by the Company.
. CUSTOMER CONVENIENCE. The Company strives to maximize convenience to its
customers by providing ample parking and fast in-and-out service.
EXPANSION STRATEGY
As of March 1, 1997, the Company operated 96 Woodworkers Warehouse and 40
Golf Day stores in the Northeast and Mid-Atlantic regions, and 23 Post Tool
stores in California and 1 in Nevada. In fiscal 1996, the Company opened 15
Woodworkers Warehouse and Post Tool stores. and 11 Golf Day stores, while
closing 7 Woodworkers Warehouse stores and 1 Golf Day store. The Company plans
to open approximately 40 to 50 retail stores in fiscal 1997.
The Company intends to continue to focus store openings in existing markets
or markets in close proximity to those in which it is currently operating in
order to take advantage of its distribution system, as well as the strong name
recognition, customer base and market knowledge that have resulted from the
Company's catalog operations. When appropriate, the Company may also seek to
open new Woodworkers Warehouse and Golf Day stores side-by-side or in the same
strip mall. The Company may also consider expansion of its retail store
operations through strategic acquisitions.
When deciding whether to enter a new market or open additional stores in
existing markets, the Company evaluates a number of criteria, including size and
growth pattern of the population, local demographics, sales volume potential,
competition, the potential effect of a new store on existing stores in the same
area, real estate occupancy expense, traffic patterns and overall level of
retail activity. Stores typically are located in high-traffic areas with
adequate parking to support their sales volume.
The cost of opening a new store (exclusive of distribution center
inventory), including fixtures, equipment and nominal preopening expenses,
averages approximately $350,000,
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including $290,000 of inventory, in the case of a tool store, and approximately
$395,000, including $270,000 of inventory, in the case of a golf store. In each
case, a portion of the inventory investment is financed with trade credit.
PRODUCTS AND MERCHANDISING
The Company offers its woodworking customers breadth and depth of product
selection, including many hard-to-find items, high quality brand name and
private label merchandise, everyday low pricing and a matching product/price
guarantee, expert customer service and convenience, all of which have enabled
the Company to compete successfully against major home centers, mass
merchandisers and hardware stores. The Company's Woodworkers Warehouse stores
have been successful even when located near home centers such as Home Depot,
Home Quarters, and Payless' Somerville Lumber Division.
The Company's hand and power tool stores and Trend-Lines catalog carry a
broad selection of brand name products, including products from Black & Decker,
Bosch, Delta, DeVilbiss, DeWalt, Emglo, Freud, Hitachi, Makita, Milwaukee,
Porter-Cable, Ryobi, Skil and Stanley Bostitch. In addition, the Company sells
private label products under its Reliant, Carb-Tech and Vulcan trademarks. Most
brand name and private label products are generally sold with a one year limited
manufacturer's parts and labor warranty.
Woodworker's Warehouse stores primarily carry woodworking power and hand
tools and accessories. In addition, Post Tool stores also carry power and hand
tools and accessories for mechanical (including automotive) work. The Company
selects products based on quality, value, durability, historic product demand,
safety and customer appeal. The Company constantly monitors its customers'
product preferences through inventory and sales data provided by the Company's
computer system, as well as its catalog operations.
Woodworkers Warehouse stores and the Trend-Lines catalog serve a wide range
of woodworking tool customers, from home workshop enthusiasts to professionals,
involved in a wide variety of activities, including home construction and
remodeling, cabinet and furniture making and other woodworking projects. The
Company's Woodworkers Warehouse and Trend-Lines customers are generally
experienced in woodworking and carpentry and desire high quality brand name
tools. Post Tool customers buy tools for woodworking, carpentry, remodeling and
general mechanical work, including automotive. Woodworkers Warehouse and Post
Tool stores also attract professionals who are buying tools for use in their
trade. The Company's stores offer professional tools, knowledgeable sales people
and fast in-and-out service. The Company's Woodworkers Warehouse stores also
offer tool repair, which is done by an outside service company.
The Company's Golf Day retail stores and mail order catalog sell a broad
selection of golf equipment and supplies, including clubs, club components,
bags, balls, golf shoes, apparel, hand carts, training aids, accessories and
gift items. The Company carries leading brand name golf products, including
products from Aldila, Cleveland, Cobra, Etonic, Foot-Joy, Hogan, MacGregor,
Mizuno, Nike, Spalding, Taylor Made, Titleist, Tommy Armour and Wilson. In
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addition, the Company sells private label golf merchandise under its Honors
trademark. The Company selects golf products using similar criteria as are
applied in the selection of tools and accessories.
RETAIL OPERATIONS
The Company designs its retail stores to be destination stores and strives
to maximize convenience to its customers by providing ample parking and fast in-
and-out service. The Company's stores are generally located either in strip
malls or in free-standing buildings.
The Company's tool stores generally range from 4,500 to 5,500 square feet
of retail space and carry approximately 5,000 stock keeping units (SKUs). The
Company's golf stores generally range from 4,000 to 5,000 square feet of retail
space and carry approximately 3,500 SKUs. Generally, the Company's stores are
open six days and two nights per week, except for certain holidays.
As of March 1, 1997, the Company operated 96 Woodworkers Warehouse stores,
23 Post Tool stores and 40 Golf Day stores. Of the Woodworkers Warehouse stores,
25 were located in New York, 20 in Massachusetts, 12 in New Jersey, 10 in New
Hampshire, 8 in Connecticut, 7 in Maine, 7 in Pennsylvania, 3 in Rhode Island, 2
in Delaware and 2 in Vermont. Of the Post Tool stores, 22 are located in
California and 1 in Nevada. Of the Golf Day stores, 12 are located in New
Jersey, 10 in Massachusetts, 5 in New York, 5 in Connecticut, 3 in New
Hampshire, 2 in Maine, 1 in Pennsylvania, 1 in Rhode Island and 1 in Delaware.
The Company's Woodworkers Warehouse retail store operations are currently
divided into regional districts, with each district containing from 18 to 30
stores. The Company evaluates the performance of its stores on a continuous
basis and will close any store which is not adequately contributing to the
profitability of the Company. During fiscal 1996, the Company closed 7
Woodworkers Warehouse stores and 1 Golf Day store.
The Company trains its employees to explain and demonstrate to customers
the use and operation of the Company's merchandise and to develop good
salesmanship. The Company's in-house training program for new employees combines
on-the-job training with the use of a Company-developed manual. Sales personnel
attend in-house training sessions conducted by experienced salespeople or
manufacturer's representatives and receive sales, product and other information
in periodic meetings with managers.
CATALOG OPERATIONS
The Company usually produces four versions of each of the Trend-Lines and
Golf Day catalogs annually. The Company mailed approximately 15.2 million copies
of its Trend-Lines catalog and approximately 16.2 million copies of its Golf Day
catalog during fiscal 1996. The Trend-Lines and Golf Day catalog mailing lists
total approximately 1,050,000 and 820,000 customers (comprised of selected
previous buyers), respectively, and are supplemented with
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various rented lists. The Company's catalogs are mailed to prospective
purchasers throughout the United States.
Catalogs are sent to persons on the Company's mailing list, persons who
have made inquiries, and persons on lists which the Company rents from or
exchanges with compatible companies. The Company continually prospects for new
customers by testing new mailing lists, media and other programs in order to
cost-effectively increase the size of the Company's proprietary customer mailing
lists. The Company also strives to generate more incremental revenue from
existing customers. Through the use of its management information systems, the
Company constantly monitors the product mix contained in its catalogs in order
to maximize profitability and satisfy its customers' needs.
A substantial majority of the Company's catalog orders and customer
inquiries are received daily by a sophisticated call management distribution
system via incoming toll-free ''800'' numbers. This system distributes calls to
trained customer service representatives and provides detailed call reporting
and analysis. The Company provides technical assistance to its customers, on a
toll-call basis. The Company usually ships orders within 48 hours after receipt.
In addition, the Company offers express delivery.
The Company designs all of its catalogs in-house with desk top publishing
equipment. The Company's most recently mailed Trend-Lines and Golf Day catalogs
contained 68 and 36 pages, respectively. The actual catalog printing is done by
outside printers, who also mail the catalogs.
MARKETING AND ADVERTISING
The Company promotes retail store sales primarily through special store
promotions, direct mail circulars, geographically concentrated newspaper and
limited radio advertising, as well as point-of-sale materials posted and
distributed in the stores. The Company also makes extensive use of special
product promotions and sales, combination offers, coupons, and other devices to
attract customers to its stores. The Company promotes catalog sales principally
by catalog mailings. Management tracks the results of all advertising to
determine future advertising programs and expenditures.
SUPPLIERS
The power and hand tool and golf equipment businesses both rely on major
vendors with well-known brand names, as well as smaller specialty vendors. In
fiscal 1996, one of the Company's vendors accounted for more than 10% of the
Company's purchases. The Company believes its vendor relationships are
satisfactory.
In fiscal 1996, approximately 14% of the Company's tool products and 3% of
the Company's golf products were purchased from overseas vendors. A substantial
portion of the tool and golf products sold under the Company's private labels
are purchased from overseas vendors. The majority of the Company's overseas
purchases are from Taiwan and, to a lesser extent, Korea, China, England,
Germany and Switzerland. This portion of the Company's business is subject to
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the risks generally associated with conducting business abroad, including
adverse fluctuations in currency rates, changes in import duties or quotas, the
imposition of taxes or other charges on imports, and disruptions or delays in
shipment or transportation. To date, these factors have not had a material
adverse impact on the Company's operations.
DISTRIBUTION
The Company leases a 286,000 square foot distribution center in Revere,
Massachusetts, just outside of Boston. The facility also houses the Company's
corporate offices and telemarketing operation. The distribution center serves
the Woodworkers Warehouse and Golf Day retail stores and the woodworking and
golf catalogs. The Company also leases a 48,000 square foot distribution center
in Hayward, California for its Post Tool stores.
The geographic concentration of its stores facilitate the Company's ability
to make deliveries to stores on a frequent basis, provide it with significant
labor and freight savings, and enable it to restock its stores' inventories
promptly and efficiently from its distribution centers.
MANAGEMENT INFORMATION SYSTEMS
The Company has invested significant resources in its management
information systems, which are located at its corporate headquarters in Revere,
Massachusetts and have been integrated with its Post Tool operations in
California. These systems, which consist of a full range of retail, financial
and merchandising systems, include inventory distribution and control, order
fulfillment and inventory replenishment, staffing, sales and marketing analyses
and financial and merchandise reporting. The Company's in-store point-of-sale
computer system provides operational data to management on a daily basis that is
used to track sales and forecast inventory requirements. The Company's inventory
control systems provide for automated replenishment of merchandise to each of
the Company's stores. The warehouse picking for the weekly store replenishment
considers store sales through the close of business the previous day.
The Company has systems that support the entire catalog cycle from
purchasing merchandise and planning the catalogs, through merchandise sales and
delivery to the customers' homes. The Company manages a catalog customer
database which contains a list of approximately 1.9 million customers. The
catalog customer database enables the Company to focus its catalog mailings on
customers most likely to purchase, analyzes merchandise trends and buying
patterns, and tracks the effectiveness of customer promotional merchandising.
A disaster recovery plan for the Company's management information systems
and electronic data processing systems has been implemented by the Company. This
plan involves recovering all systems in another data center to simulate a
situation in which the Company's center was inoperable. The Company has
contracted with a third party to provide the Company with temporary data
processing systems at an alternate location if such systems are needed.
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COMPETITION
The Company's power and hand tool and golf businesses are highly
competitive and compete with a number of other retailers, mail order catalogs
and magazine advertisers. Retail store competitors of the Company's tool stores
include home centers, lumber yards, hardware stores, mass merchandisers,
independent tool stores, industrial dealers and other specialty stores. Retail
store competitors of the Company's golf stores include sporting goods stores,
mass merchandisers, pro shops and other golf specialty stores.
The Company competes on the basis of price, selection and service. Much of
the Company's business is dependent upon competitive pricing. Many of the
Company's competitors are substantially larger and have greater financial and
other resources than the Company. The entrance of new competitors or the
expansion of operations by existing competitors in the Company's market areas
could have a material adverse effect on the Company's results of operations.
REGISTERED TRADEMARKS AND SERVICE MARKS
Golf Day(R), Woodworkers Warehouse(R), Trend-Lines(R), Trend-Lines
Woodworking Tools & Supplies(R), Golf Express(R), Carb-Tech(R), Post Tool(R),
Reliant/TM/, Vulcan(R) and Honors(R) are trademarks or service marks of the
Company. The Company intends to continue to register, when deemed appropriate,
trademarks and service marks. The Company may also register trade names, when
deemed appropriate.
REGULATORY MATTERS
The Company's catalog business is subject to the Merchandise Mail Order
Rule and related regulations promulgated by the Federal Trade Commission, which
prohibit unfair methods of competition and unfair or deceptive acts or practices
in connection with mail order sales and require sellers of mail order
merchandise to conform to certain rules of conduct with respect to shipping
dates and shipping delays. Management believes that the Company is in compliance
with such regulations.
EMPLOYEES
The Company relies on many part time, flex time and seasonal employees to
meet its needs. At March 1, 1997, the Company employed approximately 1,225
persons, of whom 813 were full time and 412 were part time. None of the
Company's employees are represented by a labor union, and the Company considers
its employee relations to be satisfactory.
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EXECUTIVE OFFICERS
Executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
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<S> <C> <C>
Stanley D. Black........................ 60 Chairman of the Board of Directors and
Chief Executive Officer
Richard Griner.......................... 53 President, Chief Operating Officer and Director
Karl P. Sniady.......................... 44 Executive Vice President, Finance and
Administration, Chief Financial Officer and
Director
Walter Spokowski........................ 40 Executive Vice President, Merchandising
Allan Afrow............................. 52 Vice President, Legal and General Counsel
Frank Bussone........................... 50 Vice President, Marketing
Ronald L. Franklin...................... 51 Vice President, Finance, Treasurer and Director
Kathleen Harris......................... 37 Vice President, Human Resources
Larry Key............................... 50 Vice President, Information Systems
John W. Leitner......................... 46 Vice President, Retail
John A. McGregor........................ 47 Vice President, Golf Day Merchandising
Giles Taylor............................ 37 Vice President, Operations
Norman W. Zagorsky...................... 59 Vice President, Purchasing
</TABLE>
Stanley D. Black, founder of the Company, has served as Chief Executive
Officer and Chairman of the Board of Directors of the Company since its
organization in 1981.
Richard Griner joined Trend-Lines as President, Chief Operating Officer and
Director in October 1996. From June, 1986 to January, 1995, Mr. Griner was
senior vice president of operations for Family Dollar Stores.
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Karl P. Sniady has been Executive Vice President of the Company since June
1995 and Chief Financial Officer of the Company since September 1995. From 1990
to 1995, Mr. Sniady was chief financial officer of Auto Source, Inc., an
automotive aftermarket retailer and subsidiary of Canadian Tire.
Walter Spokowski joined Trend-Lines as Executive Vice President,
Merchandising in March, 1997. From 1984 to February, 1997, Mr. Spokowski was
with The Home Depot, Inc., the world's largest home improvement retailer. Mr.
Spokowski served as Divisional Merchandising Manager for the Southeast Division
from September, 1994 to March, 1997 and as Product Merchandise Manager from
March, 1991 to September, 1994.
Allan Afrow has been Vice President and General Counsel of the Company since
May 1996. From January 1995 until May 1996, he was Corporate Counsel of the
Company. From January 1982 through November 1994, Mr. Afrow was General Counsel
to Cumberland Farms, Inc., a convenience store/gasoline retail business.
Frank P. Bussone has been Vice President, Marketing since January 1995. Mr.
Bussone has served as Director of Marketing of the Company from January 1988
until January 1995.
Ronald L. Franklin has been a Director of the Company since May 1994,
Treasurer since April 1994, and has served as Vice President, Finance since
March 1987.
Kathleen Harris has been Vice President, Human Resources, since January
1995. Ms. Harris served as Director of Human Resources of the Company since
March 1994. From January 1991 until February 1994, Ms. Harris served as Manager
of Human Resources of the Company.
Larry Key has been Vice President, Information systems since December, 1996.
From January, 1991 to October, 1996, Mr. Key was Senior MIS Director of Big B
Drugs.
John W. Leitner has been Vice President, Retail of the Company since March
1994. From August 1992 to February 1994, Mr. Leitner was an independent
consultant. From November 1991 to July 1992, Mr. Leitner was director of stores
elect of Child World, Inc..
John A. McGregor has been Vice President, Golf Day Merchandising since
August 1993. From April 1987 until July 1993, Mr. McGregor served as Vice
President, Development of the Company.
Giles Taylor joined Trend-Lines as Vice President, Operations in March 1997.
From September, 1994 to February, 1997, Mr. Taylor was Director of Operations
and Transportation for West Marine, Inc., the nation's largest specialty
retailer of recreational and commercial boating supplies and apparel. From
January, 1991 to September, 1994, Mr. Taylor was Director of Distribution and
Transportation for EMI Records Group NA.
Norman W. Zagorsky has been Vice President, Purchasing since January 1997
and Vice President, Trend-Lines Merchandising from March 1987 to January, 1997.
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ITEM 2. PROPERTIES
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The Company's principal executive offices and its distribution and
centralized telemarketing operation are currently located in a common facility
in Revere, Massachusetts, where the Company leases an aggregate of approximately
286,000 square feet of space. This lease expires in November, 2004 and has two
five-year renewal options . The Company also leases a distribution facility in
Hayward, California of approximately 48,000 square feet of space. This lease
expires on May 31, 2001 and has a seven-year renewal option. In addition, the
Company leases a 51,000 square foot warehouse facility in Chelsea, Massachusetts
from an affiliate of Stanley D. Black, the Chairman of the Board and Chief
Executive Officer of the Company. This lease expires in 2005. The Company is
using this space for additional storage and is attempting to sublet the residual
space.
As of March 1, 1997, the Company operated 159 stores, all but two of which
were leased. The leases typically provide for an initial term of five to ten
years, with renewal options permitting the Company to extend the term. In all
cases, the Company pays fixed annual rents. Many of the Company's leases provide
for an increase in annual fixed rental payments during the lease term and allow
the Company to terminate the lease before the end of the lease term without
penalty so long as proper notice is provided. Most leases also require the
Company to pay real estate taxes, maintenance and repair costs, insurance,
utilities and, in shopping center locations, to make contributions toward the
shopping center's common area operating costs. As of March 1, 1997, the
Company's store leases, assuming the Company exercises all lease renewal
options, were scheduled to expire as follows:
<TABLE>
<CAPTION>
NUMBER OF STORE LEASES
YEARS LEASE ----------------------
TERMS EXPIRE EXPIRING
---------------- --------
<S> <C>
1997-1999....... 6
2000-2002....... 15
2003-2004....... 36
2005 and later.. 100
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
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The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
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None
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------ ---------------------------------------------------------------------
MARKET PRICE
The Class A Common Stock is included in the Nasdaq National Market under the
symbol ''TRND.'' Prior to June 23, 1994, there was no public market for the
Class A Common Stock. The following table sets forth the high and low sales
prices for the Class A Common Stock for the periods indicated as reported by the
Nasdaq National Market, adjusted to reflect a three-for-two stock split paid on
September 1, 1995 .
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED MARCH 1, 1997
First Quarter........................ $ 6.00 $ 3.50
Second Quarter....................... $ 5.25 $ 3.88
Third Quarter........................ $ 5.38 $ 3.50
Fourth Quarter....................... $ 6.00 $ 4.63
FISCAL YEAR ENDED MARCH 2, 1996
First Quarter........................ $ 9.67 $ 7.67
Second Quarter....................... $14.83 $ 9.00
Third Quarter........................ $14.75 $11.50
Fourth Quarter....................... $12.00 $ 3.63
FISCAL YEAR ENDED FEBRUARY 28, 1995
Second Quarter (from June 23, 1994).. $ 9.25 $ 7.17
Third Quarter........................ $ 9.25 $ 8.08
Fourth Quarter....................... $10.17 $ 7.96
</TABLE>
On May 2, 1997 the last reported sales price of the Class A Common Stock on
the Nasdaq National Market was $5.25 per share. As of May 2, 1997, there were
approximately 3,600 stockholders of record of the Class A Common Stock.
DIVIDENDS
The Company does not anticipate declaring any cash dividends in the
foreseeable future. It is the current policy of the Company to retain any
earnings to finance the operations and expansion of the Company's business.
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ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------
The following table sets forth certain financial data with respect to the
Company for each of the five years in the fiscal period ended March 1, 1997.
FISCAL YEARS ENDED
------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 1, MARCH 2, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1996(1) 1995 1994 1993
-------- -------- ------- -------- -------
STATEMENTS OF OPERATIONS DATA(2):
<S> <C> <C> <C> <C> <C>
Net sales........................... $208,582 $174,795 $128,332 $99,958 $76,830
Cost of sales....................... 139,871 117,447 79,442 62,274 46,999
-------- -------- -------- ------- -------
Gross profit........................ 68,711 57,348 48,890 37,684 29,831
Selling, general and administrative
61,045 59,845 -------- ------- -------
expenses.......................... 40,096 32,134 27,340
-------- ------- -------
Restructuring charge................ - 1,397 - - -
-------- -------- -------- ------- -------
Income (loss) from operations....... 7,666 (3,894) 8,794 5,550 2,491
Interest expense, net............... 2,355 1,654 373 742 487
-------- -------- -------- ------- -------
Income (loss) before provision
(benefit) for income taxes........ 5,311 (5,548) 8,421 4,808 2,004
Provision (benefit) for income taxes 2,061 (2,229) 2,990 210 136
-------- -------- -------- ------- -------
Net income (loss)................... $ 3,250 $ (3,319) $ 5,431 $ 4,598 $ 1,868
======== ======== ======== ======= =======
Pro forma net income (loss)(3)...... $ 5,051 $ 2,888 $ 1,324
======== ======= =======
Pro forma net income (loss) per
share(4).......................... $ .29 $ (.33) $ .56 $ .41 $ .19
======== ======== ======== ======= =======
Weighted average number of
shares outstanding(4)............. 11,255 10,163 8,966 7,042 7,042
STORE OPERATING DATA:
Net store sales (000's)............. $104,342 $ 98,515 $ 52,578 $26,457 $18,799
Percentage increase (decrease) in
comparable net store sales(5)..... 19.6% (0.3%) 1.4% 6.0% 23.6%
Number of stores at end of period:
Tool stores....................... 119 111 82(6)) 30 20
Golf stores....................... 40 30 10 5 1
CATALOG OPERATING DATA:
Net catalog sales 68,240 76,280 75,754 73,501 58,031
MARCH 1, MARCH 2, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1996(1) 1995 1994 1993
-------- -------- -------- ------- -------
BALANCE SHEET DATA:
Working capital..................... $ 30,060 $ 31,406 $ 17,224 $ 2,457 $ 1,302
Total assets........................ 121,054 100,658 66,539 29,683 21,347
Total debt.......................... 27,757 21,292 12,071 7,680 7,586
Stockholders' equity................ 43,406 42,288 25,854 4,582 960
</TABLE>
(1) The Company changed its fiscal year-end to the Saturday closest to the last
day of February. As a result, the Company's 1995 Fiscal year, which ended
on March 2, 1996, is a 53-week year and includes three extra days compared
to the prior year.
(2) The Company operated as an S Corporation from March 1, 1987 through June 28,
1994 and, as a result, its taxable income (loss) during that period was
passed through to its stockholders for federal income tax purposes.
Accordingly, the historical financial statements do not include a provision
for federal and state income taxes for operations through June 28, 1994,
except for certain state income taxes imposed at the corporate level. See
Notes 2 and 3 to Notes to Consolidated Financial Statements.
(3) Pro forma net income (loss) gives effect to a provision for income taxes
that would have been required had the Company been taxed as a C Corporation
from March 1, 1990 through June 28, 1994. See Notes 2 and 3 to Notes to
Consolidated Financial Statements.
(4) Adjusted to reflect a three-for-two split of the Class A and Class B Common
Stock paid on September 1, 1995 and July 17, 1996, respectively. See Note 5
to Notes to Consolidated Financial Statements.
(5) Calculated using net sales of comparable stores opened for at least a 13
month period.
(6) Reflects the purchase in January 1995 of 17 Post Tool retail stores. See
Note 14 to Notes to Consolidated Financial Statements.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS.
-------------
GENERAL
Until recent years, the Company's net sales have been primarily attributable
to its mail order catalog operations, especially sales of power and hand tools
and accessories. During fiscal 1996, the Company continued the expansion of its
retail store operations, opening 15 Woodworkers Warehouse and Post Tool, and 11
Golf Day retail stores. The Company expects that the expansion of its retail
store operations will generate the Company's future growth. As of March 1,
1997, the Company operated 119 Woodworkers Warehouse and Post Tool Retail Stores
and 40 Golf Day retail stores.
The following table presents net sales and overall gross margin data of the
Company for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
March 1, March 2, February 28,
1997 1996 1995
------------ ----------- --------------
<S> <C> <C> <C>
(In thousands, except percentage data)
Net Sales:
Retail--
Tools........ $115,183 $ 87,192 $ 47,786
Golf......... 25,158 11,323 4,792
Catalog--
Trend-Lines.. 43,283 51,831 52,387
Golf Day..... 24,958 24,449 23,367
-------- -------- --------
Total......... $208,582 $174,795 $128,332
======== ======== ========
Gross Margin.. 32.9% 32.8% 38.1%
- -------------- ======== ======== ========
</TABLE>
On an overall basis, the Company's catalog sales yield higher gross profit
margins than retail store sales as a result of differences in product mix and
greater promotional pricing in retail sales. Therefore, the Company anticipates
that its total gross profit as a percentage of net sales will decrease as retail
store sales become a greater percentage of the Company's total sales. The
decrease in gross margin from fiscal 1994 to fiscal 1995 was also affected by a
year-end inventory adjustment of $4.8 million. During fiscal 1996, the Company
achieved a slight increase in its gross profit as a percentage of net sales as
compared to fiscal 1995, primarily as a result of purchasing efficiencies, as
well as a more favorable shrink experience in 1996. With respect to both
catalog and retail store operations, sales of golf products have yielded higher
gross profit percentages than sales of tools.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------
March 1, March 2, February 28,
1997 1996 1995
--------- --------- -------------
<S> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0%
Cost of sales...................... 67.1 67.2 61.9
----- ----- -----
Gross profit....................... 32.9 32.8 38.1
Selling, general and
administrative expenses.......... 29.2 34.2 31.2
Restructuring charge............... -- .8 --
----- ----- -----
Income (loss) from operations...... 3.7 (2.2) 6.9
Interest expense, net.............. 1.1 1.0 .3
----- ----- -----
Income (loss) before income taxes.. 2.6% (3.2)% 6.6%
===== ===== =====
</TABLE>
FISCAL 1996 VERSUS FISCAL 1995
Net sales for fiscal 1996 increased by $33.8 million, or 19.3%, from $174.8
million in fiscal 1995 to $208.6 million in fiscal 1996 as a result of a $41.8
million, or 42.4%, increase in net store sales, and a $8.0 million, or 10.5%,
decrease in net catalog sales. The increase in net store sales was primarily
due to the addition of 26 new stores as well as the impact of a full year of
operations for 57 stores opened in the previous fiscal year. In addition,
comparable store sales increased by 19.6%. The Company believes that the
increase in comparable net store sales was a result of adopting a more
promotional pricing strategy as well as closing 6 stores in the fourth quarter
of fiscal 1995 and 8 stores in fiscal 1996. The decrease in net catalog sales
was attributable to a 16.5% decrease in sales from the Company's Trend-Lines
catalog as compared to fiscal 1995. Sales from the Company's Golf Day catalog
increased 2.1% as compared to fiscal 1995. The 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.
Gross profit for fiscal 1996 increased 19.8%, from $57.3 million in fiscal
1995 to $68.7 million in fiscal 1996. As a percentage of net sales, gross
profit increased to 32.9% in fiscal 1996, compared to 32.8% in fiscal 1995. The
increase in gross profit as a percentage of net sales was primarily due to
improved purchasing efficiencies, as well as a more favorable shrink experience
in 1996.
Selling, general and administrative expenses for fiscal 1996 increased 2.0%,
from $59.8 million in fiscal 1995 to $61.0 million in fiscal 1996. As a
percentage of net sales, selling, general and administrative expenses decreased
to 29.3% in fiscal 1996 from 34.2% in fiscal 1995. The increases in selling,
general and administrative expenses were primarily related to the Company's
retail expansion. The decrease in selling, general and administrative expenses
as a percentage of net sales was primarily attributable to increased operational
efficiencies associated
17
<PAGE>
with the Company's expansion and the lower cost of operating retail stores as
compared to catalog operations.
In the fourth quarter of fiscal 1995, the Company recorded a restructuring
charge of $1.4 million, representing the costs associated with reorganizing its
operations. These costs included the rent and related expenses for the closing
of 12 retail store locations (of which 6 were closed late in the fourth quarter
of fiscal 1995 and the remainder were closed in fiscal 1996), and expenses
related to the consolidation of the Company's distribution centers and the
severance and related benefits for terminated employees.
As of March 1,1997, approximately $0.7 million was charged against the
restructuring reserve for store closing related activities. In addition,
approximately $0.4 million associated with the consolidation of the Company's
distribution centers was also charged against the restructuring reserve in
fiscal year 1996. As of March 1, 1997 and March 2, 1996, approximately $0.3
million and $1.4 million of restructuring costs are included in accrued expenses
in the accompanying consolidated balance sheets. There were no non-cash
adjustments to the accrual during fiscal year ended March 1,1997.
Interest expense, net of interest income for fiscal 1996, increased from
$1.7 million in fiscal 1995 to $2.4 million in fiscal 1996. The increase in
interest expense is attributable to an increase in the Company's bank debt and
related bank debt interest rate.
FISCAL 1995 VERSUS FISCAL 1994
Net sales for fiscal 1995 increased $46.5 million, or 36.2%, from $128.3
million in fiscal 1994 to $174.8 million in fiscal 1995 as a result of a $45.9
million, or 87.4%, increase in net store sales, and a $0.5 million, or 0.7%,
increase in net catalog sales. The increase in net store sales was primarily
due to the addition of 58 new stores as well as the impact of a full year of
operations for the 57 stores opened in the previous fiscal year, which includes
17 Post Tool stores, acquired by the Company on January 1, 1995, which are
equivalent to the Company's Woodworkers Warehouse stores, and have similar gross
margin and operating results. Comparable store sales decreased by 0.3%. The
Company believes that comparable net store sales were adversely impacted by the
Company's strategy of clustering stores in a market area, which has resulted in
reduced sales in certain existing stores. The increase in net catalog sales was
primarily attributable to the increase in the number of orders from the
Company's Golf Day catalog. Sales from the Company's Trend-Lines catalog were
$0.6 million (or 1.1%) less than fiscal 1994. The 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.
Gross profit for fiscal 1995 increased 17.3%, from $48.9 million in fiscal
1994 to $57.3 million in fiscal 1995. As a percentage of net sales, gross
profit decreased to 32.8% in fiscal 1995, compared to 38.1% in fiscal 1994. The
decrease in gross profit as a percentage of net sales was primarily due to an
increase in retail store sales as a percentage of the Company's total sales,
promotional catalog activity as well as a year-end inventory adjustment of $4.8
million.
18
<PAGE>
Selling, general and administrative expenses for fiscal 1995 increased
49.3%, from $40.1 million in fiscal 1994 to $59.8 million in fiscal 1995. As a
percentage of net sales, selling, general and administrative expenses increased
to 34.2% in fiscal 1995 from 31.2% in fiscal 1994. The increases in selling,
general and administrative expenses were primarily related to the Company's
retail expansion and increases in postage and paper costs associated with the
Company's catalog operations. The increase in selling, general and
administrative expenses as a percentage of net sales was due primarily to lower
than anticipated sales due to a soft Christmas retail environment and a
particularly harsh winter in the Northeast, and higher than planned selling,
general and administrative expenses. The Company has implemented cost reduction
programs which include the elimination of certain positions as well as wage and
hiring freezes.
In the fourth quarter of fiscal 1995, the Company recorded a restructuring
charge of $1.4 million, representing the costs associated with reorganizing its
operations. These costs include the rent and related expenses for the closing of
12 retail store locations of which 6 were closed late in the fourth quarter of
fiscal 1995 and the remainder will be closed in fiscal 1996, and related
expenses for the consolidation of the Company's distribution centers, as well as
the severance and related benefits for terminated employees.
Interest expense, net of interest income for fiscal 1995 increased from
$373,000 in fiscal 1994 to $1.7 million in fiscal 1995. The increase in
interest expense is attributable to the increase in the Company's bank debt.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company's working capital decreased by $1.6 million,
from $31.7 million as of March 2, 1996 to $30.1 million as of March 1, 1997.
The decrease in working capital resulted primarily from a $12.5 million increase
in accounts payable and accrued expenses, as well as an increase of $6.7
million in the Company's bank credit facility. These increases in liabilities
were partially offset by a $17.0 million increase in inventories, principally to
support its expanding retail operations, a $3.8 million increase in net accounts
receivable and a decrease of $4.4 million in income taxes receivable associated
with a tax loss carryback and estimated tax payments made in fiscal 1995.
During fiscal 1996, net cash provided by operating activities was
approximately $0.4 million. The primary use of the cash was the $17.0 million
increase in inventories which was offset by the $13.4 million increase in
accounts payable and a decrease of $3.5 million in refundable income taxes.
During fiscal 1996, net cash used in investing activities was approximately
$3.9 million, of which $3.5 million was for the purchase of property and
equipment required for the Company's retail expansion.
19
<PAGE>
During fiscal 1996, net cash provided by financing activities was
approximately $4.0 million, primarily attributable to a $6.7 million increase in
borrowings on the Company's bank credit facility, which was partially offset by
a $2.2 million repurchase of the Company's Class A common stock.
On August 15, 1996, the Company authorized the repurchase of up to 500,000
shares of its Class A Common Stock. As of March 1, 1997, 440,000 shares were
repurchased under the authorization at a cost of approximately $2.2 million, and
since that time all other remaining shares were repurchased at a cost of
approximately $0.3 million.
The Company has used its bank credit facility over the last several years
primarily to finance its operations and retail expansion. The amount available
under the credit facility is $40 million, of which $25.2 million (including
letters of credit totally approximately $0.8 million) was outstanding as of
March 1, 1997. The Company has a revolving secured bank credit facility,
pursuant to which the Company is permitted to borrow a maximum of $40 million
based on a borrowing formula related to inventory levels and is in final
negotiations to increase the credit line to $50 million. Under the terms of the
agreement, the facility contains financial covenants and bears interest at the
bank's reference rate plus .75% (9.0% at March 1, 1997) or LIBOR plus 2.25%
(7.63% at March 1, 1997). If for any 12 month rolling period, effective as of
March 1, 1997, the fixed charges ratio exceeds certain limits, as defined, the
bank's interest rate on the facility is decreased by .25% for the period
immediately following such rolling period. At March 1, 1997 the Company
exceeded the fixed charges ratio. In addition, the agreement provides that the
Company will pay a commitment fee of .375% per year of the average unused
committed amount.
The Company anticipates that in fiscal 1997 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 estimates that the cost of opening a new store (exclusive
of distribution center inventory) averages approximately $350,000, including
$290,000 of inventory, in the case of a tool store, and approximately $395,000,
including $270,000 of inventory, in the case of a golf store. In each case, a
portion of the inventory investment is financed with trade credit. For fiscal
1997, the Company currently plans to open between 40 to 50 stores.
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."
20
<PAGE>
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
Statements included in this report that do not relate to present or
historical conditions are "forward-looking statements" within the meaning of the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Additional oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents other than
this report that are filed with the Securities and Exchange Commission. Such
forward-looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such forward-
looking statements. Forward-looking statements in this report and elsewhere may
include without limitation, statements relating to the Company's plans,
strategies, objectives, expectations, intentions and adequacy of resources and
are intended to be made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts,"
"intends," "possible," "expects," "estimates," "anticipates," or "plans" and
similar expressions are intended to identify forward-looking statements.
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 retaining 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The consolidated Financial Statements and Supplementary Data of the Company
are listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There were no disagreements on accounting principles or practices or
financial statement disclosure between the Company and its accountants during
the fiscal year ended March 1, 1997.
21
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The information required by this Item 10 is hereby incorporated by reference
to the text appearing under Part I, Item 1 - Business under the caption
"Executive Officers and Other Significant Employees" in this report, and by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
- ------- ----------------------
The information required by this Item 11 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed by the Company within
120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required by this Item 12 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed by the Company within
120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The information required by this Item 13 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed by the Company within
120 days after the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ------- ----------------------------------------------------------------
<TABLE>
<CAPTION>
(A) (1) CONSOLIDATED FINANCIAL STATEMENTS Page
---------------------------------
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets at March 1, 1997 and March 2, 1996 F-3
Consolidated Statements of Operations for the Fiscal Years ended March 1, 1997,
March 2, 1996 and February 28, 1995.......................................... F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years
ended March 1, 1997, March 2, 1996 and February 28, 1995.................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years ended March 1, 1997,
March 2, 1996 and February 28, 1995.......................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
</TABLE>
22
<PAGE>
(A) (2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
Schedule II -- Valuation and Qualifying Accounts.................. S-1
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
<TABLE>
<CAPTION>
(A) (3) EXHIBITS
--------
Exhibit
Number Reference
------- ---------
<S> <C> <C>
3.01 Revised Articles of Organization, as amended. A
3.02 Restated By-Laws. A
4.01 Specimen Certificate of Class A Common Stock. A
4.02 Description of Capital Stock (contained in the Form A
of the Registrant's Restated Articles of Organization
referenced above).
*10.01 1993 Amended and Restated Stock Option Plan. A
*10.02 1994 Non-Qualified Stock Option Plan For Non- A
Employee Directors.
*10.03 Form of Indemnification Agreement for directors A
and officers of Registrant.
10.07 Agreement of Merger dated as of July 1, 1993 A
between Coburn Investments, Inc. and the Registrant.
10.08 Master Note dated November 20, 1993, payable to A
Coburn Investments, Inc. to the Registrant, with
related Loan and Security Agreement.
10.10 Commercial Lease dated December 3, 1987, as amended A
as of November 1, 1993, between Stanley D. Black
Trustee of Mystic Limited Realty Trust and the Registrant.
10.11 Three Promissory Notes, dated July 1, 1989, payable A
by the Registrant to Stanley D. Black, and related
Security Agreement
</TABLE>
23
<PAGE>
10.12 Warehouse lease dated July 11, 1994 between Syroco, B
Inc. and the Registrant.
10.13 Loan and Security Agreement dated July 3, 1996 C
10.14 Purchase and Sale Agreement dated as of December D
19, 1994 between Post Tool, Inc. and the Registrant.
11.01 Statement re: Computation of Per Share Earnings. Filed
herewith
21.01 Subsidiaries of the Registrant. E
23.01 Consent of Arthur Andersen LLP. Filed
herewith
____________________
A Incorporated by reference to the Company's registration statement on Form S-1
(Registration No. 33-78772) and by reference to Exhibit 3.0 to the Company's
quarterly report on Form 10-Q for the fiscal quarter ended August 31, 1996.
The number set forth herein is the number of the Exhibit in said registration
statement.
B Incorporated by reference to Exhibit 7.1 to the Company's current report on
Form 8-K dated July 11, 1994.
C Incorporated by reference to Exhibit 10.0 to the Company's quarterly report
on Form 10-Q
for the fiscal quarter ended August 31, 1996.
D Incorporated by reference to Exhibit 1 to the Company's current report on
Form 8-K dated January 1, 1995.
E Incorporated by reference to Exhibit 21.01 to the Company's annual report on
Form 10-K for the fiscal year ended March 2, 1996.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as
amended, reference is made to the documents previously filed with the Securities
and Exchange Commission, which documents are hereby incorporated by reference.
(B) REPORTS ON FORM 8-K
-------------------
None
24
<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.
TREND-LINES, INC.
Date: May 16, 1997 By: /s/ Stanley D. Black
---------------------------------------
Stanley D. Black, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STANLEY D. BLACK Director and Chief May 16, 1997
- ------------------------- Executive Officer
Stanley D. Black
/s/ KARL P. SNIADY Director and Executive Vice President, May 16, 1997
- ------------------------- Finance and Administration
Karl P. Sniady (Principal Financial and
Accounting Officer)
/s/ RONALD L. FRANKLIN Director May 16, 1997
- -------------------------
Ronald L. Franklin
/s/ RICHARD GRINER President, Chief Operationg Officer May 16, 1997
- ------------------------- and Director
Richard Griner
/s/ RICHARD A. MANDELL Director May 16, 1997
- -------------------------
Richard A. Mandell
* Deceased May 15, 1997 Director
- -------------------------
Merrill Zenner
/s/ IRWIN WINTER Director May 16, 1997
- -------------------------
Irwin Winter
</TABLE>
25
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of March 1, 1997 and March 2, 1996 F-3
Consolidated Statements of Operations for the Fiscal Years Ended March 1, 1997,
March 2, 1996 and February 28, 1995 F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended
March 1, 1997, March 2, 1996 and February 28, 1995 F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
March 1, 1997, March 2, 1996 and February 28, 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
To Trend-Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Trend-Lines,
Inc. (a Massachusetts corporation) and subsidiary as of March 1, 1997 and March
2, 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended March 1, 1997, March 2, 1996 and
February 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trend-Lines, Inc. and
subsidiary as of March 1, 1997, March 2, 1996, and the results of their
operations and their cash flows for the years ended March 1, 1997, March 2, 1996
and February 28, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index at item 14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 18, 1997
F-2
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
MARCH 1, MARCH 2,
1997 1996
---------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,006 $ 436
Accounts receivable, net 12,155 8,319
Refundable income taxes - 4,401
Inventories 85,909 68,885
Prepaid expenses and other current
assets 6,462 5,799
-------- --------
Total current assets 105,532 87,840
Property and Equipment, net 14,753 12,815
Other Assets 769 310
-------- --------
$121,054 $100,965
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank credit facility $ 25,196 $ 18,483
Current portion of capital lease
obligations 686 566
Accounts payable 43,900 30,476
Accrued expenses 5,690 6,602
-------- --------
Total current liabilities 75,472 56,127
-------- --------
Capital Lease Obligations, net of
current portion 1,875 2,243
-------- --------
Deferred Income Tax Liabilities 301 307
-------- --------
Commitments and Contingencies (Note 10)
Stockholders' Equity:
Common stock, $.01 par value-
Class A-
Issued--6,302,534 and 6,252,965
shares at March 1, 1997 and
March 2, 1996, respectively 63 62
Class B-
Issued and outstanding--4,750,026
and 4,790,915 shares at March 1,
1997 and March 2, 1996,
respectively 47 48
Additional paid-in capital 41,318 41,300
Retained earnings 4,128 878
Less: 440,000 Class A shares held
in treasury at March 1, 1997,
at cost (2,150) -
-------- --------
Total stockholders' equity 43,406 42,288
-------- --------
$121,054 $100,965
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------
MARCH 1, MARCH 2, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $ 208,582 $ 174,795 $ 128,332
Cost of Sales 139,871 117,447 79,442
----------- ----------- ----------
Gross profit 68,711 57,348 48,890
Selling, General and Administrative
Expenses 61,045 59,845 40,096
Restructuring Charge - 1,397 -
----------- ----------- ----------
Income (loss) from operations 7,666 (3,894) 8,794
Interest Expense, net 2,355 1,654 373
----------- ----------- ----------
Income (loss) before provision
(benefit) for income taxes 5,311 (5,548) 8,421
Provision (Benefit) for Income Taxes 2,061 (2,229) 2,990
----------- ----------- ----------
Net income (loss) $ 3,250 $ (3,319) $ 5,431
=========== =========== ==========
Pro Forma Income Data (Unaudited)
(Notes 2 and 3):
Income before taxes $ 8,421
Income taxes 3,370
----------
Net income $ 5,051
==========
Net Income (Loss) per Share $.29 $(.33) $.56
=========== =========== ==========
Weighted Average Shares Outstanding
(Note 2) 11,255,362 10,163,454 8,965,835
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
NUMBER $.01 NUMBER $.01 PAID-IN RETAINED NUMBER STOCKHOLDERS'
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL EARNINGS OF SHARES AMOUNT EQUITY
-------------------- -------------------- ------- -------- ----------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1994 - $ - 6,614,996 $ 66 $ 66 $ 4,450 - $ - $ 4,582
Proceeds from initial
public offering,
less offering
expenses 2,887,500 29 - - 22,365 - - - 22,394
Exercise of stock
options 9,852 - - - 18 - - - 18
Conversion of Class B
shares to Class A shares 344,085 3 (344,085) (3) - - - - -
Net income - - - - - 5,431 - - 5,431
Distribution of
accumulated S
corporation earnings to
stockholder - - - - (887) (5,684) - - (6,571)
--------- --- ---------- ------ ------- ------- ------- ---------- -------
Balance, February 28, 1995 3,241,437 $32 6,270,911 $ 63 $21,562 $ 4,197 - $ - $25,854
Conversion of Class B
shares to Class A shares 1,480,000 15 (1,480,000) (15) - - - - -
Proceeds from public
offering, less offering
expenses 1,500,000 15 - - 19,581 - - - 19,596
Proceeds from exercise
of stock options
including related tax
benefit 31,528 - - - 157 - - - 157
Net loss - - - - - (3,319) - - (3,319)
--------- --- ---------- ------ ------- ------- ------- ---------- -------
Balance, March 2, 1996 6,252,965 $62 4,790,911 $ 48 $41,300 $ 878 - $ - $42,288
Conversion of Class B
shares to Class A
shares 40,885 1 (40,885) (1) - - - - -
Proceeds from exercise
of stock options 8,684 - - - 18 - - - 18
Treasury stock purchase - - - - - 440,000 (2,150) (2,150)
Net income - - - - - 3,250 - - 3,250
--------- --- ---------- ------ ------- ------- ------- ---------- -------
Balance, March 1, 1997 6,302,534 $63 4,750,026 $ 47 $41,318 $ 4,128 440,000 $(2,150) $43,406
========= === ========== ====== ======= ======= ======= ========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------
MARCH 1, MARCH 2, FEBRUARY 28,
1997 1996 1995
--------- --------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 3,250 $ (3,319) $ 5,431
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization 1,832 1,556 1,109
Deferred income taxes 601 (574) (315)
Restructuring charge - 1,397 -
(Gain) loss on sale of property and
equipment (18) 549 -
Changes in current assets and
liabilities-
Accounts receivable (3,836) (1,573) (3,594)
Refundable income taxes 3,517 (4,401) -
Inventories (17,024) (23,733) (18,699)
Prepaid expenses and other
current assets (386) (333) (1,576)
Accounts payable 13,424 4,822 10,206
Accrued expenses (912) 2,245 39
-------- -------- --------
Net cash provided by (used in)
operating activities 448 (23,364) (7,399)
-------- -------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (3,500) (4,861) (6,697)
Proceeds from sale of property and
equipment 70 - -
(Increase) decrease in other assets (459) 472 (595)
Acquisition of Post Tool, Inc., net - - (3,572)
-------- -------- --------
Net cash used in investing
activities (3,889) (4,389) (10,864)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from public offerings, net - 19,596 22,394
Proceeds from exercise of stock
options 18 157 18
Net borrowings under bank credit
facilities 6,713 8,110 2,508
Proceeds from sale leaseback
arrangement - 1,099 -
Net payments on capital lease
obligations (570) (1,134) (256)
Purchases of treasury stock (2,150) - -
Distributions to stockholders - - (6,571)
-------- -------- --------
Net cash provided by financing
activities 4,011 27,828 18,093
-------- -------- --------
Net Increase (Decrease) in Cash And
Cash Equivalents 570 75 (170)
Cash and Cash Equivalents, beginning of
year 436 361 531
-------- -------- --------
Cash and Cash Equivalents, end of year $ 1,006 $ 436 $ 361
======== ======== ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid for-
Interest $ 2,650 $ 1,676 $ 429
======== ======== ========
Income taxes $ 176 $ 3,265 $ 2,892
======== ======== ========
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Equipment acquired under capital
lease obligations $ 322 $ 1,146 $ 1,059
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Operations
Trend-Lines, Inc. (the Company) is a specialty retailer, primarily of
woodworking tools and accessories sold through its nationally distributed
Trend-Lines mail-order catalog and through Woodworkers Warehouse retail
stores located in New England, New York, New Jersey, Pennsylvania and
Delaware, as well as Post Tool stores located in California and Nevada. The
Company is also a specialty retailer of golf equipment and supplies sold
through its Golf Day retail stores located in New England, New York, New
Jersey, Delaware and Pennsylvania and its nationally distributed mail-order
catalog.
On June 30, 1994, the Company completed the issuance of 2,550,000 shares of
Class A common stock in an initial public offering (IPO). Net proceeds to
the Company were approximately $19.7 million after deducting expenses of the
offering. Subsequently, on July 29, 1994, the Company completed the issuance
of 337,500 shares of Class A common stock pursuant to the exercise of the
underwriters' IPO overallotment option, resulting in additional net proceeds
to the Company of approximately $2.7 million.
On January 1, 1995, the Company acquired the operations of Post Tool, Inc., a
majority-owned subsidiary of West Union Corporation (see Note 14). The
Company has established a wholly owned subsidiary, Post Tool, Inc., to
operate the retail stores acquired in this transaction.
On September 22, 1995, the Company completed the issuance of a total of
2,500,000 shares of Class A common stock, of which 1,000,000 shares were sold
by a selling stockholder. Net proceeds to the Company were approximately
$19.6 million after deducting expenses of the offering.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of
certain accounting policies described in this note and elsewhere in the
accompanying notes to consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and Post Tool, Inc., its wholly owned subsidiary. All
significant intercompany balances and transactions have been eliminated
in consolidation.
F-7
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(b) Management Estimates Used in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(d) Revenue Recognition
Revenue from retail operations is recognized at the time of sale. Revenue
from catalog sales is recognized upon shipment to the customer. The
Company expenses warranty costs as incurred, as historically such costs
have not been significant.
(e) Inventories
The Company values inventories, which consist of merchandise held
for resale, at the lower of cost (first-in, first-out) or market.
(f) Prepaid Catalog Expenses
The Company has adopted the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 93-7, Reporting on
Advertising Costs, and capitalizes direct costs relating to the
production and distribution of its mail-order catalogs. These costs are
charged to operations in relation to the revenues that are derived from
the mailings, which is generally one year or less from the date of
mailing. Management's revenue estimates are used to determine the cost
recovery period of the prepaid catalog expenses.
(g) Store Preopening Costs
The Company expenses, as incurred, all preopening costs related to each
new retail store location, as historically such costs have not been
significant.
F-8
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(h) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
is computed under both the straight-line and accelerated methods in
amounts that allocate the cost of all assets over their estimated useful
lives. In fiscal 1995, the Company revised the estimated remaining lives
of certain assets. The effect of this change in accounting estimate was a
reduction of depreciation expense by approximately $0.4 million in fiscal
1995.
<TABLE>
<CAPTION>
ESTIMATED USEFUL
ASSET CLASSIFICATION LIVES
<S> <C>
Equipment 5-10 Years
Equipment under capital leases Life of lease
Furniture and fixtures 10 Years
Building 39.5 Years
Leasehold improvements Initial lease term
and first option
</TABLE>
(i) Customer Prepayments
Advance payments received from customers are included in accrued
expenses in the accompanying consolidated balance sheets and are
recognized as revenue upon shipment.
(j) Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist
primarily of cash and cash equivalents and trade accounts receivable. The
Company places its cash and cash equivalents in highly rated financial
institutions. The Company's accounts receivable credit risk is not
limited to any particular customer. The Company maintains an allowance
for potential credit losses.
F-9
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(k) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents and its bank credit facility. The carrying amounts of the
Company's cash and cash equivalents approximate fair value. The bank
credit facility bears interest at variable market rates; therefore, the
carrying amount approximates fair value.
(l) Credit Card Policy
The Company extends credit to customers through third-party credit cards,
including its private-label credit card. Credit under these accounts is
extended by third parties, and accordingly, the Company bears minimal
financial risk under these agreements as a result of credit card fraud.
The Company's agreements with third-party credit companies provide for
the electronic processing of credit approvals and electronic submission
of transactions. Upon the submission of these transactions to the credit
card companies, payment is transmitted directly to the Company's bank
account usually within two to four days of the sales transaction.
Amounts relating to fiscal year sales not received by the Company before
year-end are included in accounts receivable in the accompanying
consolidated balance sheets. Fees incurred on credit card sales are
included in selling, general and administrative expenses.
(m) Income Taxes
Income taxes, including pro forma computations, are provided using the
liability method of accounting in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting. Deferred tax expense (benefit)
results from the net change during the year of deferred tax assets and
liabilities.
(n) Pro Forma Net Income Data and Earnings per Share
Pro forma net income is determined after deducting income taxes that
would have resulted had the Company been taxed as a C corporation for the
entirety of fiscal 1994.
F-10
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(n) Pro Forma Net Income Data and Earnings per Share (Continued)
Pro forma net income per share is computed by dividing pro forma net
income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. Common stock
equivalents consist of common stock issuable upon the exercise of
outstanding options. Common stock equivalents have not been considered
in the calculation of net loss per share for the year ended March 2,
1996, as their effect would be antidilutive. Outstanding shares have
been adjusted to reflect a three-for-two split of the Class A common
stock payable on September 1, 1995 to stockholders of record on August
24, 1995 and a three-for-two split of the Class B common stock effected
in the form of a stock dividend on July 17, 1996 (see Note 5). The stock
splits have been retroactively reflected in the accompanying consolidated
financial statements. In accordance with Securities and Exchange
Commission requirements, all common stock and common stock equivalents
issued during the 12 months preceding the IPO have been included in the
net income per share computation as if they were outstanding for all
periods preceding the effective date of the Company's IPO using the
treasury stock method. Fully diluted pro forma net income per share has
not been separately presented, as the amounts are not materially
different from primary pro forma net income per share.
(o) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with SFAS No,
121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of. The Company continually reviews its long-
lived assets for events or changes in circumstances that might indicate
the carrying amount of the assets may not be recoverable. The Company
assesses the recoverability of assets by determining whether the
depreciation of such assets over their remaining lives can be recovered
through projected undiscounted future cash flows. The amount of
impairment, if any, is measured based on projected discounted future cash
flows using a discount rate reflecting the Company's average cost of
funds. At March 1, 1997, no such impairment of assets was indicated.
(p) Postretirement Benefits
The Company has no obligations for postretirement benefits under SFAS No.
106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, or postemployment benefits under SFAS No. 112, Employers'
Accounting for Postemployment Benefits, as it does not currently offer
such benefits.
F-11
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(q) Fiscal Year
On January 17, 1996, the Board of Directors approved a change in the
Company's fiscal year-end from the last day in February to the Saturday
closest to the last day of February. As a result, the Company's fiscal
1995 year ended on March 2, 1996 and included three extra days compared
to the prior year. For interim reporting purposes, the Company closes
its books on the Saturday of the thirteenth week of the fiscal quarter.
(r) Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. This statement is
effective for the fiscal years ending after December 15, 1997 and early
adoption is not permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company will adopt
this statement for its fiscal year ending February 28, 1998.
Pro forma calculations of basic and diluted earnings per share as
required by SFAS No. 128 are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------
MARCH 1, MARCH 2, FEBRUARY 28,
1997 1996 1995 (1)
-------- -------- ------------
<S> <C> <C> <C>
Basic EPS
Net income (loss) $ 3,250 $(3,319) $5,051
Weighted average common shares
outstanding 10,973 10,163 8,542
------- ------- ------
Basic EPS $ .30 $ (.33) $ .59
======= ======= ======
Diluted EPS
Net income (loss) $ 3,250 $(3,319) $5,051
Weighted average common and common
equivalent shares outstanding 11,255 10,163 8,966
Diluted EPS $ .29 $ (.33) $ .56
======= ======= ======
</TABLE>
F-12
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(2) Summary of Significant Accounting Policies (Continued)
(1) Net income is determined after deducting income taxes that would
have resulted had the Company been taxed as a C corporation for the
entirety of fiscal 1994.
(s) Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified in order to conform with the current year's presentation.
(3) Income Taxes
The Company was an S corporation for income tax reporting purposes until
June 28, 1994, the day prior to the closing date of the IPO. As an S
corporation, federal and certain state income tax consequences of the
Company were passed through to the individual stockholders, and dividend
distributions were made to the stockholders for payment of their
individual taxes. The components of the provision (benefit) for income
taxes shown in the consolidated statements of operations are as follows
(in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------
MARCH 1, MARCH 2, FEBRUARY 28,
1997 1996 1995
-------- -------- ------------
<S> <C> <C> <C>
Current-
Federal $1,186 $(1,655) $2,490
State 274 - 810
------ ------- ------
1,460 (1,655) 3,300
------ ------- ------
Deferred-
Federal 587 (20) (295)
State 14 (554) (15)
------ ------- ------
601 (574) (310)
------ ------- ------
$2,061 $(2,229) $2,990
====== ======= ======
</TABLE>
F-13
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(3) Income Taxes (Continued)
Pro forma income taxes, assuming that the Company was subject to C
corporation income taxes for the entirety of fiscal 1994, is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
FEBRUARY 28,
1995
-----------------
<S> <C>
Federal $2,865
State taxes, net of federal benefits 505
------
$3,370
======
</TABLE>
The reconciliation of the federal statutory rate to the benefit
(provision) for income taxes is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------
MARCH 1, MARCH 2, FEBRUARY 28,
1997 1996 1995
<S> <C> <C> <C>
Income tax provision
(benefit) at federal
statutory rate 34% (34)% 34%
State taxes, net of federal 4.8 (6.2) 6
benefit ---- ------ ----
38.8% (40.2)% 40%
==== ====== ====
</TABLE>
The components of the net deferred income taxes recognized in the
accompanying consolidated balance sheets with the approximate income tax
effect of each type of temporary difference are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
<S> <C> <C>
Inventories $ 691 $ 474
Restructuring reserve 115 572
State operating loss carryforward 376 500
Other nondeductible reserves and
accruals 21 (277)
Depreciation and amortization (474) (340)
----- -----
$ 729 $ 929
===== =====
</TABLE>
At March 1, 1997, the Company had approximately $4.1 million of state
operating loss carryforwards, which expire beginning in fiscal 2000.
F-14
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(4) Bank Credit Facility
During fiscal 1996, the Company entered into a secured line of credit
agreement with a bank that expires on July 3, 1999. The facility bears
interest at the bank's reference rate plus .75% (9.0% at March 1, 1997) or
LIBOR plus 2.25% (7.63% at March 1, 1997). If for any 12 month rolling
period, effective as of March 1, 1997, the fixed charges ratio exceeds
certain limits, as defined, the bank's interest rate on the facility is
decreased by .25% for the period immediately following such rolling period.
At March 1, 1997 the Company exceeded the fixed charges ratio. A commitment
fee of .375% per year of the average unused commitment amount, as defined, is
payable monthly. The line of credit provides for a maximum borrowings of $40
million (including amounts reserved for outstanding letters of credit and a
foreign exchange facility) based on a borrowing formula related to inventory
levels, as defined.
At March 1, 1997, the Company had approximately $25.2 million of borrowings
outstanding and approximately $0.8 million of letters of credit outstanding.
The Company had approximately $14.0 million in available borrowings under
this facility at March 1, 1997. The maximum and average outstanding loan
balances during fiscal 1996 under this facility were $36.1 million and $28.4
million, respectively. The bank has a security interest in substantially all
assets of the Company. The bank credit facility agreement contains certain
restrictive covenants, including, but not limited to, maintenance of certain
levels of tangible net worth, interest coverage ratio's and limitations on
capital expenditures. The Company was in compliance with all bank covenants
at March 1, 1997.
The Company had a secured facility with another bank, which was to expire in
September 1998. At March 2, 1996, the Company had approximately $18.5
million of borrowings outstanding and approximately $0.7 million of letters
of credit outstanding. As of March 2, 1996, the Company was in violation of
certain financial covenants, which were subsequently waived by the bank for
the fiscal year ended March 2, 1996.
(5) Stockholders' Equity
(a) Stock Splits
On August 8, 1995, the Company's 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.
F-15
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(5) Stockholders' Equity (Continued)
(a) Stock Splits (Continued)
A stock split for the Company's Class B common stock was not effected at
the same time as the Class A because the number of authorized shares
would have been exceeded. As a result, Class B common stockholders had a
conversion feature of 1.5-to-1 of Class A common stock. At its annual
meeting on July 17, 1996, the stockholders authorized a three-for-two
stock split of the Class B common stock effected in the form of a stock
dividend. No additional shares were required to be authorized due to the
fact that enough Class B common shares had already been converted to
Class A common shares, therefore; the Class B common shares on a post-
split basis did not exceed the authorized limit. Each share of the Class
B common stock is convertible into one share of Class A common stock.
The stock split has been retroactively reflected in the accompanying
consolidated statements and notes for all periods presented.
(b) S Corporation Distribution
In connection with the termination of the Company's S corporation tax
status, on June 28, 1994, the Company made a final distribution of all
accumulated S corporation taxable earnings. On the date of such
distribution, taxable earnings were approximately $0.9 million in excess
of S corporation retained earnings.
(c) Common Stock
On May 9, 1994, the Board of Directors and stockholders voted to restate
the Company's Articles of Organization and By-laws. The effect of the
restatement is (i) to change the authorized capital from 1,000,000
shares of common stock to 20,000,000 shares of Class A common stock,
$.01 par value, and 5,000,000 shares of Class B common stock, $.01 par
value; (ii) to reclassify its issued and outstanding common stock into
Class B common stock; and (iii) to effect a 4.9-for-1 stock split,
effected in the form of a stock dividend, of its Class B common stock.
The rights and privileges of the common stockholders are as follows:
VOTING RIGHTS
Holders of Class A and Class B common stock are entitled to one vote
per share. Holders of both classes are entitled to vote together as
one class on all matters, with certain exceptions, including the
election of directors.
DIVIDENDS
Holders of Class A common stock and Class B common stock taken together
as a single class are entitled to receive such dividends as may be
declared by the Board of Directors.
F-16
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(5) Stockholders' Equity (Continued)
(d) Preferred Stock
On May 9, 1994, the Board of Directors and stockholders voted to
authorize 1,000,000 shares of preferred stock, $.01 par value. The Board
of Directors have the right to establish any right and preferences of
any series of preferred stock it so designates. At March 1, 1997 and
March 2, 1996, there were no issued or outstanding shares of preferred
stock and the Board of Directors had not established any rights or
preferences.
(e) Stock Option Plans
On September 30, 1993, the Board of Directors and stockholders approved
the 1993 Employee Stock Option Plan (the Option Plan), which provides
for the grant of options to purchase shares of Class A common stock to
employees of the Company. An employee's right to exercise such options
is subject to vesting, generally over six to eight years or in such
percentages as defined by the Board of Directors, and terminates 10
years from the date of grant. A total of 1,275,000 shares of Class A
common stock have been reserved for options to be granted under the
Option Plan.
On May 9, 1994, the Board of Directors and stockholders approved the
1994 Non-Qualified Stock Option Plan for Non-Employee Directors (the
Director Plan), which provides for the grant of non-qualified options to
purchase shares of Class A common stock to non-employee directors of the
Company. A total of 90,000 shares of Class A common stock have been
reserved for options to be granted under the Director Plan. These
options begin vesting one year after the date of grant ratably over a
period of six years and terminate 10 years from the date of grant.
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, Accounting for Stock Issued to Employees. In October
1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which is effective for fiscal
years beginning after December 15, 1995. SFAS No. 123 establishes a
fair-value-based method of accounting for stock-based compensation
plans. The Company has adopted the disclosure-only alternative under
SFAS No. 123, which requires disclosure of the pro forma effects on
earnings and earnings per share as if SFAS No. 123 had been adopted, as
well as certain other information. The Company has computed the pro
forma disclosures required under SFAS No. 123 for all stock options
granted as of March 1, 1997 using the Black-Scholes option pricing model
prescribed by SFAS No. 123.
F-17
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(5) Stockholders' Equity (Continued)
(e) Stock Option Plans(Continued)
The assumptions used and the weighted average information for the fiscal
years ended March 1, 1997 and March 2, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------
MARCH 1, MARCH 2,
1997 1996
<S> <C> <C>
Risk-free interest rates 5.65%- 6.70% 5.65%- 6.70%
Expected dividend yield - -
Expected lives 7.5 years 7.5 years
Expected volatility 85% 85%
Weighted average grant-date fair
value of options granted during
the period $2.32 $7.07
Weighted-average exercise price $3.46 $5.76
Weighted-average remaining
contractual life of options
outstanding 7.41 years 7.92 years
Weighted average exercise price
of 313,388 and 187,024 options
exercisable at March 1, 1997
and March 2, 1996, respectively $2.98 $4.80
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------
MARCH 1, MARCH 2,
1997 1996
<S> <C> <C>
Pro forma net income (loss) $2,294 $(3,518)
====== =======
Pro forma net income (loss) per
share $ .21 $ (.35)
====== =======
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to February 28, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in the
future years.
F-18
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(5) Stockholders' Equity (Continued)
(e) Stock Option Plans (Continued)
Activity under the Option Plan and Director Plan is summarized as
follows:
<TABLE>
<CAPTION>
OPTION PLAN DIRECTOR PLAN
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
OF SHARES PER SHARE OF SHARES PER SHARE
<S> <C> <C> <C> <C>
Outstanding, February
28, 1994 572,375 $ 1.84 - $ -
Granted 432,633 8.17- 8.50 27,000 8.67
Terminated (96,753) 1.84- 8.50 - -
Exercised (9,852) 1.84 - -
--------- ------------ ------- ------------
Outstanding, February 28, 1995 898,403 1.84- 8.50 27,000 8.67
Granted 213,443 8.92- 9.58 13,500 10.00
Terminated (85,159) 1.84- 8.50 - -
Exercised (31,540) 1.84- 8.50 - -
--------- ------------ ------- ------------
Outstanding, March 2, 1996 995,147 1.84- 9.58 40,500 8.67- 10.00
Granted 730,975 4.25- 4.88 40,000 4.00- 4.88
Terminated (582,980) 1.84- 9.58 (40,500) 8.67- 10.00
Exercised (8,684) 1.84- 4.38 - -
--------- ------------ ------- ------------
Outstanding, March 1, 1997 1,134,458 $1.84-$ 4.88 40,000 $4.00- $4.88
========= ============ ======= ============
Exercisable, March 1, 1997 313,388 $1,84-$ 4.38 - $ -
========= ============ ======= ============
</TABLE>
(f) Treasury Stock
On August 15, 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. As of March 1,
1997, the Company had purchased 440,000 shares of Class A common stock
for approximately $2.2 million, of which 135,000 shares were purchased
at fair market value from a member of the Board of Directors at a cost
of approximately $0.7 million.
F-19
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(6) Accounts Receivable
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
<S> <C> <C>
Vendor receivables $ 8,459 $5,829
Trade receivables 1,305 1,265
Credit card receivables 1,778 1,091
Other 798 227
Allowance for doubtful
accounts (185) (93)
------- ------
$12,155 $8,319
======= ======
</TABLE>
(7) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
<S> <C> <C>
Prepaid catalog $ 2,905 $ 2,515
Other 3,557 2,977
------- -------
$ 6,462 $ 5,492
======= =======
</TABLE>
(8) Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 1, MARCH 2,
1997 1996
<S> <C> <C>
Land $ 186 $ 186
Building 677 677
Furniture and fixtures 7,174 5,498
Equipment 5,082 4,077
Equipment under capital
leases 3,470 3,240
Leasehold improvements 3,818 3,013
------- -------
20,407 16,691
Less--Accumulated
depreciation and
amortization 5,654 3,876
------- -------
$14,753 $12,815
======= =======
</TABLE>
F-20
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(8) Property and Equipment (Continued)
At March 1, 1997 and March 2, 1996, the accumulated depreciation associated
with equipment under capital leases was approximately $0.9 million and $0.4
million, respectively.
(9) Transactions with Related Parties and Stockholders
The Company has a lease arrangement with Mystic United Realty Trust
(Mystic), for warehouse and office space at its Chelsea, Massachusetts,
facility (the Chelsea facility) under a noncancelable lease through 2005.
The president/principal stockholder of the Company is a trustee and
beneficiary of Mystic. Under the lease, the Company must pay to Mystic, in
the form of additional rent, all insurance, real estate taxes, maintenance
and operating costs related to the leased premises, which approximate $0.4
million annually (see Notes 10 and 13).
(10) Commitments and Contingencies
(a) Capital Leases
The Company leases computers and other equipment under several lease
agreements that qualify for capitalized treatment under SFAS No. 13,
Accounting for Leases. These agreements require monthly payments
including interest at rates ranging from 5.7% to 9.3%, and expire at
various dates through January 2002.
Future minimum lease payments under capital lease obligations at
March 1, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
<S> <C>
1997 $ 898
1998 898
1999 867
2000 308
2001 72
------
Total minimum lease payments 3,043
Less--Amounts representing interest 482
------
Obligations under capital leases 2,561
Less--Current portion of capital lease
obligations 686
------
$1,875
======
</TABLE>
F-21
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(10) Commitments and Contingencies (Continued)
(b) Operating Leases
The Company leases office and warehouse space under lease agreements
expiring through June 2005. The Company also leases retail stores,
warehouse and office space, and certain machinery and equipment from
unrelated parties under leases classified as operating leases for
financial statement purposes. Approximate future minimum lease payments
under operating leases as of March 1, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR TOTAL
<S> <C>
1997 $10,046
1998 9,687
1999 8,862
2000 6,954
2001 5,278
Thereafter 15,894
-------
$56,721
=======
</TABLE>
Rent and related expenses charged to operations during each of the
years ended March 1, 1997, March 2, 1996 and February 28, 1995 were
approximately $10.3, $8.9 and $3.9 million, respectively.
(c) Litigation
In the ordinary course of business, the Company is party to various
types of litigation. The Company believes it has meritorious defenses
to all claims, and, in its opinion, all litigation currently pending or
threatened will not have a material effect on the Company's financial
position or results of operations.
(11) Profit Sharing Plan
The Company maintains a profit sharing plan (the Plan) that provides for
tax deferred employee benefits under Section 401(k) of the Internal Revenue
Code. The Plan allows employees to make contributions, a portion of which
will be matched by the Company, up to the lesser of 3% of an employee's
salary or the minimum amount allowed by law, as defined. The Company may
elect to make an additional discretionary contribution in any Plan year.
There were no discretionary Company contributions made during the fiscal
years ended March 1, 1997, March 2, 1996 and February 28, 1995. The Company
contributions vest at a rate of 20% per year, beginning after one year of
employment. The Company has made matching contributions of approximately
$0.2, $0.2 and $0.1 million for the
F-22
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(11) Profit Sharing Plan (Continued)
fiscal years ended March 1, 1997, March 2, 1996 and February 28, 1995,
respectively, to the Plan. The Company pays the administrative costs of the
Plan.
(12) Significant Vendor
Purchases from the Company's largest single supplier were 10.4%, 12.2% and
12.7% of total purchases for the years ended March 1, 1997, March 2, 1996
and February 28, 1995, respectively.
(13) 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 the rent and related
expenses for closing 12 retail store locations and for the consolidation of
the Company's distribution centers, as well as the severance and related
benefits for terminated retail employees. The Company recorded the
restructuring charge as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Closing of retail stores and
related cost of severance
and benefits of terminated
employees $ 954
Expenses associated with
consolidation of distribution
centers 443
------
$1,397
======
</TABLE>
The Company anticipates the completion of the restructuring during fiscal
1997 as the majority of the retail store leases require a one-year
notification of termination and the consolidation of its distribution
centers will be completed in fiscal 1997.
As of March 1, 1997, the 12 retail store locations were closed, as
anticipated when the restructuring reserve was established, and
approximately $0.7 million was charged against the restructuring reserve
for store closing related activities. In addition, approximately $0.4
million associated with the consolidation of the Company's distribution
centers was also charged against the restructuring reserve in fiscal year
1996. As of March 1, 1997 and March 2, 1996, approximately $0.3 million and
$1.4 million, respectively, of restructuring costs are included in accrued
expenses in the accompanying consolidated balance sheets. There were no
non-cash adjustments to the accrual during fiscal year ended March 1, 1997.
F-23
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(14) Acquisition of Post Tool, Inc.
The Company acquired the assets and assumed certain liabilities of Post
Tool, Inc., a majority-owned subsidiary of West Union Corporation, on
January 1, 1995. The acquisition has been accounted for as a purchase in
accordance with the requirements of Accounting Principles Board Opinion No.
16, Business Combinations. Total consideration allocated to the fair market
value of assets and liabilities acquired on the purchase date are as
follows (in thousands):
<TABLE>
<S> <C>
Inventories $4,401
Prepaid expenses 216
Deferred liabilities (30)
Accounts payable and
accrued expenses (918)
Capital lease obligations (97)
------
$3,572
======
</TABLE>
The following unaudited pro forma summary represents the condensed
consolidated statement of income for the fiscal year ended February 28,
1995 as if the acquisition of Post Tool, Inc. had been consummated on March
1, 1994 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
FEBRUARY 28, 1995
<S> <C>
Net sales $145,094
Cost of sales 91,454
--------
Gross profit 53,640
Selling, general and administrative
expenses 45,298
--------
Income from operations 8,342
Interest expense, net 864
--------
Income before income taxes 7,478
Pro forma provision for income taxes 2,990
--------
Pro forma net income $ 4,488
========
Pro forma net income per share $.50
========
</TABLE>
The significant accounting policies applied in this condensed consolidated
statement of income are similar to those described in Note 2 herein. The
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the
acquisition been made on March 1, 1994 or of results that may occur in the
future.
F-24
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(15) Selected Information by Business Segments
The Company sells its products through retail stores and its nationally
distributed mail-order catalogs. Retail store operations consist of
Woodworkers Warehouse, Post Tool and Golf Day retail stores. Catalog
operations consist of the Trend-Lines and Golf Day catalogs. Selected
information for each of the Company's major business segments is as follows
for each of the fiscal years ended March 1, 1997, March 2, 1996 and
February 28, 1995 (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------------
MARCH 1, MARCH 2, FEBRUARY 28,
1997 1996 1995
<S> <C> <C> <C>
Net sales-
Retail $140,342 $ 98,515 $ 52,578
Catalog 68,240 76,280 75,754
-------- -------- --------
$208,582 $174,795 $128,332
======== ======== ========
Income (loss) from operations-
Retail $ 7,591 $ 321 $ 4,834
Catalog 8,126 8,220 11,141
General corporate expenses (8,051) (12,435) (7,181)
-------- -------- --------
$ 7,666 $ (3,894) $ 8,794
======== ======== ========
Identifiable assets-
Retail $ 76,540 $ 67,356 $ 35,015
Catalog 43,508 32,866 31,162
General corporate assets 1,006 436 362
-------- -------- --------
$121,054 $100,658 $ 66,539
======== ======== ========
Depreciation and amortization-
Retail $ 971 $ 419 $ 305
Catalog 861 1,137 804
-------- -------- --------
$ 1,832 $ 1,556 $ 1,109
======== ======== ========
Capital expenditures-
Retail $ 2,335 $ 4,325 $ 2,045
Catalog 1,487 1,682 5,711
-------- -------- --------
$ 3,822 $ 6,007 $ 7,756
======== ======== ========
</TABLE>
F-25
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(15) Selected Information by Business Segments (Continued)
The Company operates from a single distribution center in Revere,
Massachusetts, for its Woodworkers Warehouse and Golf Day operations and
utilizes common labor pools, common management at the corporate level and a
single telemarketing sales force. With the acquisition of Post Tool, Inc.,
the Company has retained its Hayward, California, facility as a
distribution center for fulfillment of Post Tool, Inc. retail stores
exclusively. As a result, many of the expenses of the Company are shared
between the business segments. The disclosures in the above table were
determined after allocating shared resources and expenses. Such allocations
were based on the judgment of the Company's management.
(16) Quarterly Results of Operations (Unaudited )
The following summarized unaudited results of operations for fiscal 1996
and 1995 have been accounted for using generally accepted accounting
principles for interim reporting purposes and include adjustments
(consisting of normal recurring adjustments) that the Company considers
necessary for the fair presentation of results for the interim periods
shown below. During the fourth quarter of fiscal 1995, the Company recorded
aggregate adjustments of $9.9 million consisting primarily of charges to
recognize inventory adjustments ($4.8 million), recorded a restructuring
reserve ($1.4 million) and revised certain estimates and related reserves
and recorded certain other charges ($3.7 million). (In thousands, except
per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Fiscal 1996-
Net sales $49,311 $46,827 $49,100 $63,344
Gross profit 16,416 15,223 16,017 21,055
Net income 184 225 640 2,201
Net income per share $ .02 $ .02 $ .06 $ .20
Weighted average
common shares
outstanding 11,297 11,298 11,305 11,170
Fiscal 1995-
Net sales $37,376 $36,458 $40,061 $60,900
Gross profit 14,130 12,891 13,732 16,595
Net income (loss) 771 875 631 (5,596)
Net income (loss) per
share $ .08 $ .09 $ .06 $ (.51)
Weighted average
common shares
outstanding 9,946 10,034 11,201 11,049
</TABLE>
F-26
<PAGE>
SCHEDULE II
TREND-LINES, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Charged to Balance,
Beginning Costs and End of
of Period Expenses Deductions Period
--------- ---------- ---------- --------
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
February 28, 1995 $ 61 $ 45 $ 13 $ 93
========= ========== ========== ========
March 2, 1996 $ 93 $ - $ - $ 93
========= ========== ========== ========
March 1, 1997 $ 93 $ 92 $ - $ 185
========= ========== ========== ========
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Reference
<S> <C> <C>
3.01 Revised Articles of Organization, as amended. A
3.02 Restated By-Laws. A
4.01 Specimen Certificate of Class A Common Stock. A
4.02 Description of Capital Stock (contained in the Form A
of the Registrant's Restated Articles of Organization
referenced above).
*10.01 1993 Amended and Restated Stock Option Plan. A
*10.02 1994 Non-Qualified Stock Option Plan For Non- A
Employee Directors.
*10.03 Form of Indemnification Agreement for directors A
and officers of Registrant.
10.07 Agreement of Merger dated as of July 1, 1993 A
between Coburn Investments, Inc. and the Registrant.
10.08 Master Note dated November 20, 1993, payable to A
Coburn Investments, Inc. to the Registrant, with
related Loan and Security Agreement.
10.10 Commercial Lease dated December 3, 1987, as amended A
as of November 1, 1993, between Stanley D. Black
Trustee of Mystic Limited Realty Trust and the Registrant. A
10.11 Three Promissory Notes, dated July 1, 1989, payable A
by the Registrant to Stanley D. Black, and related
Security Agreement.
10.12 Warehouse lease dated July 11, 1994 between Syroco, B
Inc. and the Registrant.
10.13 Loan and Security Agreement dated July 3, 1996 C
</TABLE>
<PAGE>
EXHIBIT INDEX
Continued
<TABLE>
<CAPTION>
Exhibit
Number Reference
<S> <C> <C>
10.14 Purchase and Sale Agreement dated as of December D
19, 1994 between Post Tool, Inc. and the Registrant.
11.01 Statement re: Computation of Per Share Earnings. Filed
herewith
21.01 Subsidiaries of the Registrant. E
23.01 Consent of Arthur Andersen LLP. Filed
herewith
____________________
</TABLE>
A Incorporated by reference to the Company's registration statement on Form S-1
(Registration No. 33-78772) and by reference to Exhibit 3.0 to the Company's
quarterly report on Form 10-Q for the fiscal quarter ended August 31, 1996.
The number set forth herein is the number of the Exhibit in said registration
statement.
B Incorporated by reference to Exhibit 7.1 to the Company's current report on
Form 8-K dated July 11, 1994.
C Incorporated by referenced to Exhibit 10.0 to the Company's quarterly report
on Form 10-Q
for the fiscal quarter ended August 31, 1996.
D Incorporated by reference to Exhibit 1 to the Company's current report on
Form 8-K dated January 1, 1995.
E Incorporated by reference to Exhibit 21.01 to the Company's annual report on
Form 10-K for
the fiscal year ended March 2, 1996.
F Incorporated by reference to Exhibits 10 and 21 to the Company's annual
report on Form
10-K for the fiscal year ended March 2, 1996.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as
amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby incorporated
by reference.
<PAGE>
EXHIBIT 11.01
TREND-LINES, INC. AND SUBSIDIARY
CALCULATION OF SHARES USED IN DETERMINING
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE(1)
<TABLE>
<CAPTION>
----------FISCAL YEARS ENDED-----------
MARCH 1, MARCH 2, FEBRUARY 28,
1997 1996 1995
---------- ---------- ------------
<S> <C> <C> <C>
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING DURING
THIS PERIOD 10,973,416 10,163,45 8,541,963
WEIGHTED AVERAGE COMMON STOCK EQUIVALENTS 281,946 -(2) 423,872
----------- ---------- ------------
11,255,362 10,163,454 8,965,835
=========== =========== ============
</TABLE>
(1) Fully diluted net income per share has not been separately presented as the
amounts would not be materially different from primary net income (loss) per
share.
(2) Weighted average common stock equilavents are not included, as their effect
would be antidilutive.
<PAGE>
Exhibit 23.01
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8 (File No. 33-87690).
/s/ Arthur Andersen LLP
Boston, Massachusetts
May 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-01-1997 MAR-02-1996
<PERIOD-START> MAR-03-1996 MAR-01-1995
<PERIOD-END> MAR-01-1997 MAR-02-1996
<CASH> 1,006 436
<SECURITIES> 0 0
<RECEIVABLES> 12,155 8,319
<ALLOWANCES> 0 0
<INVENTORY> 85,909 68,885
<CURRENT-ASSETS> 105,532 87,840
<PP&E> 14,753 12,815
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 121,054 100,965
<CURRENT-LIABILITIES> 75,472 56,127
<BONDS> 0 0
0 0
0 0
<COMMON> 110 110
<OTHER-SE> 43,296 42,178
<TOTAL-LIABILITY-AND-EQUITY> 121,054 100,965
<SALES> 208,582 174,795
<TOTAL-REVENUES> 208,582 174,795
<CGS> 139,871 117,447
<TOTAL-COSTS> 139,871 117,447
<OTHER-EXPENSES> 61,045 61,242
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,355 1,654
<INCOME-PRETAX> 5,311 (5,548)
<INCOME-TAX> 2,061 (2,229)
<INCOME-CONTINUING> 3,250 (3,319)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,250 (3,319)
<EPS-PRIMARY> .29 (.33)
<EPS-DILUTED> 0 0
</TABLE>
