SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 28, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
------------------ TO -----------------
0-24390
Commission file number . . . . . . . . .
TREND - LINES, INC.
. . . . .. . . . . . . . . . . . . .
(Exact name of registrant as specified in its charter)
Massachusetts 04-2722797
------------------- -------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
135 American Legion Highway, Revere, Massachusetts 02151
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Address of principal executive office) (Zip Code)
(781) 853 - 0900
. . . . . . . . . . . .
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months ( or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ..X... No......
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS NUMBER OF SHARES OUTSTANDING OCTOBER 1, 1999
----- --------------------------------------------
Class A Common Stock, $.01 par 6,010,411
value
Class B Common Stock, $.01 par 4,641,082
value
<PAGE>
Trend-Lines, Inc. and Subsidiary
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
August 28, 1999 (Unaudited) and February 27, 1999 3
Condensed Consolidated Statements of Operations
Six Months Ended August 28, 1999 and
August 29, 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended August 28, 1999 and
August 29, 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 9-14
Part II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
August 28, February 27,
1999 1999
--------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 591 $ 540
Accounts receivable, net 23,439 22,270
Inventories 128,935 131,219
Prepaid expenses and other current assets 6,061 9,508
--------- ---------
Total current assets 159,026 163,537
PROPERTY AND EQUIPMENT, NET 21,418 21,413
INTANGIBLE ASSETS, NET 6,446 6,621
OTHER ASSETS 1,258 1,367
--------- ---------
$ 188,148 $ 192,938
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank credit facility $ 89,501 $ 80,152
Current portion of capital lease obligations 830 1,028
Accounts payable 49,521 62,589
Accrued expenses 6,761 8,056
--------- ---------
Total current liabilities 146,613 151,825
--------- ---------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 435 671
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A --
Authorized - 20,000,000 shares
Issued - 6,510,411 and 6,469,553
shares at August 28, 1999
and February 27, 1999 65 64
Class B --
Authorized - 5,000,000 shares
Issued and outstanding - 4,641,08
and 4,681,082 shares at August 28, 1999
and February 27, 1999 46 47
Additional paid-in capital 41,626 41,625
Retained earnings 1,823 1,166
Less 500,000 Class A shares held in treasury
at August 28, 1999 and February 27, 1999,
at cost (2,460) (2,460)
--------- ---------
Total stockholders' equity 41,100 40,442
--------- ---------
$ 188,148 $ 192,938
========= =========
See notes to condensed consolidated financial statements
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 68,365 $ 64,897 $ 139,346 $ 124,536
COST OF SALES 47,496 44,890 96,337 86,948
-------- -------- -------- --------
GROSS PROFIT 20,869 20,007 43,009 37,588
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,301 23,240 38,574 46,658
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 2,568 (3,233) 4,435 (9,070)
INTEREST EXPENSE, NET 1,770 1,369 3,358 2,422
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) 798 (4,602) 1,077 (11,492)
FOR INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES 311 (943) 420 (3,230)
-------- -------- -------- --------
NET INCOME (LOSS) $ 487 $ (3,659) $ 657 $ (8,262)
======= ======== ======== ========
BASIC NET INCOME (LOSS) PER SHARE $ 0.05 $ (0.34) $ 0.06 $ (0.78)
======= ======== ======== ========
DILUTED NET INCOME (LOSS) PER SHARE $ 0.05 $ (0.34) $ 0.06 $ (0.78)
======= ======== ======== ========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 10,628,538 10,650,344 10,639,586 10,646,097
(Note 2) ========== ======== ======== ========
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 2) 10,695,477 10,650,344 10,707,889 10,646,097
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Six Months Ended
August 28, August 29,
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 657 $ (8,262)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization 2,691 2,245
Changes in current assets and liabilities
Accounts receivable (1,169) (792)
Inventories 2,284 (3,361)
Prepaid expenses and other current assets 3,447 692
Accounts payable (13,068) (8,581)
Accrued expenses (1,297) (2,087)
---------- ---------
Net cash used in operating activities (6,455) (20,146)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,347) (3,993)
Increase (decrease) in other assets (64) 79
---------- ---------
Net cash used in investing activities (2,411) (3,914)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank credit facilities 9,349 24,648
Net payments on capital lease obligations (434) (374)
Proceeds from exercise of stock options 2 101
---------- ---------
Net cash provided by financing activities 8,917 24,375
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 51 (315)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 540 669
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 591 984
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (refunded) for:
Interest $ 2,928 $ 2,308
========== =========
Income taxes $ (3,505) $ 339
========== =========
See notes to condensed consolidated financial statements.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The information set forth in these financial statements is unaudited and may be
subject to normal year end adjustments. In the opinion of management, the
information reflects all adjustments, which consist of normal recurring
accruals, that are considered necessary to present a fair statement of the
results of operations of Trend-Lines, Inc. (the "Company") for the interim
periods presented. The operating results for the six months ended August 28,
1999 are not necessarily indicative of the results to be expected for the fiscal
year ending February 26, 2000.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year February 27, 1999. Certain information in footnote disclosures
normally included in financial statements has been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
2. Earnings Per Share Data
In fiscal 1997, the Company adopted SFAS No. 128 Earnings Per Share, which
changed the method of calculating earnings per share. SFAS 128 requires the
presentation of "basic" earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing the net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. For the purposes of calculating diluted earnings per share, the
denominator includes both the weighted average number of common stock
outstanding and the dilutive effect of common stock equivalents such as stock
options and warrants. For the three and six months ended August 29, 1998 the
effect of dilutive stock options were not included in the earnings per share
calculation as their effect would have been antidilutive. For the three and
six months ended August 29, 1998, total of 214,998 and 418,182 dilutive options
were excluded respectively.
Below is a summary of the shares used in calculating basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Weighted average number shares of common 10,628,538 10,650,344 10,639,586 10,646,097
stock outstanding
Dilutive stock options 66,939 0 68,303 0
---------- ---------- ---------- ----------
Shares used in calculating diluted 10,695,477 10,650,344 10,707,889 10,646,097
earnings per share ========== ========== ========== ==========
</TABLE>
<PAGE>
3. Bank Credit Facility
During fiscal 1996, the Company entered into a secured line-of-credit agreement
with a bank (the "credit facility") that, as amended during fiscal 1998, expires
on December 31, 2001. The credit facility bears interest at the bank's reference
rate plus .75% (8.75% at August 28, 1999) or LIBOR plus 2.25% (7.52% at August
28, 1999). If for any 12 month rolling period, the fixed charges ratio exceeds
certain limits, as defined, the bank's interest rate on the credit facility is
decreased by .25% for the period immediately following such rolling period. A
commitment fee of .375% per year of the average unused commitment amount, as
defined, is payable monthly. The credit facility allows for borrowing up to $100
million based on a percentage of inventory (the "advance rate"). Borrowings
include 50% of the amounts reserved for outstanding letters of credit.
At August 28, 1999, the Company had approximately $89.5 million of borrowings
outstanding and approximately $1.4 million of letters of credit outstanding. The
Company had approximately $0.6 million in available borrowings under this
facility at August 28, 1999. The bank has a security interest in substantially
all assets of the Company. The bank credit facility agreement contains certain
financial covenants, including, but not limited to, maintaining minimum levels
of tangible net worth, and interest coverage ratios and limitations on capital
expenditures. At August 28, 1999, the Company was in compliance with all
financial covenants.
The borrowing base of the credit facility is to a maximum amount of $100
million. The advance rate is 65% through the last day of May, 1999, 70% from the
first day of June, 1999 through the last day of October, 1999, and 65%
thereafter. The Company is required to maintain an interest coverage ratio of
2.00:1.00, on a rolling 12 month basis for each quarter. The adjusted tangible
net worth as of the last day of the second and third fiscal quarters of 1999 is
required to be $41.0 million, and for the fourth fiscal quarter 1999 and each
fiscal quarter thereafter, adjusted tangible net worth is required to be $42.0
million. Capital expenditures may not exceed $6.0 million for any fiscal year.
<PAGE>
4. Selected Information By Business Segment
Information as to the operations of the different business segments with respect
to sales and operating income is set forth below for quarter ended and six
months ended August 28, 1999 and August 29, 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Sales
Retail
Tools $ 34,544 $ 30,754 $ 72,765 $ 62,186
Golf 26,047 22,079 48,061 39,616
Catalog
Tools $ 4,215 $ 7,116 $ 10,133 $ 13,221
Golf 3,559 4,948 8,387 9,513
---------- ---------- ---------- ----------
$ 68,365 $ 64,897 $ 139,346 $ 124,536
========== ========== ========== ==========
Income (loss) from operations
Retail
Tools $ 2,337 $ ($533) $ 5,360 $ (1,132)
Golf 1,918 1,068 2,592 962
Catalog
Tools $ 1,147 $ (148) $ 2,300 $ (280)
Golf 276 (369) 514 (374)
General corporate expenses (3,110) (3,251) (6,331) (8,246)
$ 2,568 $ ($3,233) $ 4,435 $ (9,070)
========== ========== ========== ==========
</TABLE>
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. Post Tool, Inc. has a distribution center facility in Hayward,
California. 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the second quarter of fiscal 1999 increased by $3.5 million, or
5.4%, from $64.9 million for the second quarter of fiscal 1998 to $68.4 million.
Net retail sales for the second quarter of fiscal 1999 increased $7.8 million or
14.8% from $52.8 million for the second quarter of fiscal 1998 to $60.6 million.
Catalog sales for the second quarter of fiscal 1999 decreased $4.3 million, or
35.5%, from $12.1 million for the second quarter of fiscal 1998 to $7.8 million.
However, catalog sales for the second quarter of fiscal 1998 included orders
that were originally received during the first quarter of fiscal 1998, but were
not shipped until the second quarter due to difficulties associated with the
implementation of the Company's warehouse management system. Furthermore,
catalog sales were impacted by the Company's practice, which the Company plans
to continue, of not mailing catalogs to areas where it operates retail stores.
The revenue growth of the Company's retail stores is primarily attributable to
increased store sales at existing retail locations as well as the expansion of
the Company's retail store base. Comparable store sales for Woodworkers
Warehouse, Post Tool and Golf Day stores for the second quarter of fiscal 1999
increased by 11.2% as compared to the second quarter of fiscal 1998. The store
base expanded 4.1% from 217 locations at the end of the second quarter of 1998
to 226 locations at the end of the second quarter of fiscal 1999.
Net sales for the first six months of fiscal 1999 increased by $14.8 million, or
11.9%, from $124.5 million for the first six months of fiscal 1998 to $139.3
million. Net retail sales for the first six months of fiscal 1999 increased
$19.0 million or 18.7% from $101.8 million for the first six months of fiscal
1998 to $120.8 million. Catalog sales for the first six months of fiscal 1999
decreased $4.2 million, or 18.5%, from $22.7 million for the first six months of
fiscal 1998 to $18.5 million. This is partially due to the Company's practice,
which the Company plans to continue, of not mailing catalogs to areas where it
operates retail stores. The revenue growth of retail stores is primarily
attributable to increased store sales at existing retail locations as well as
the expansion of the Company's retail store base.
<PAGE>
The following table presents net sales and gross margin data of the Company for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
(In thousands, except percentage data)
<S> <C> <C> <C> <C>
Net Sales:
Retail
Tools $ 34,544 $ 30,754 $ 72,765 $ 62,186
Golf 26,047 22,079 48,061 39,616
Catalog
Tools $ 4,215 $ 7,116 $ 10,133 $ 13,221
Golf 3,559 4,948 8,387 9,513
---------- ---------- ---------- ----------
$ 68,365 $ 64,897 $ 139,346 $ 124,536
========== ========== ========== ==========
Gross Margin
Retail
Tools 27.2% 25.1% 28.1% 24.9%
Golf 30.1% 32.4% 29.1% 31.6%
Catalog
Tools 45.8% 40.2% 46.0% 39.0%
Golf 48.1% 45.8% 47.0% 46.6%
) ---------- ---------- ---------- ----------
30.5% 30.8% 30.9% 30.2%
========== ========== ========== ==========
</TABLE>
Following is a summary of retail store growth:
Three Months Ended
August 28, August 29,
1999 1998
--------- --------
Stores operated at the beginning of the quarter
Tools 148 137
Golf 79 76
------- --------
Total 227 213
Stores opened
Tools 0 5
Golf 1 1
------- --------
Total 1 6
Stores closed
Tools 0 1
Golf 2 1
------- --------
Total 2 2
Stores operated at the end of the second quarter
Tools 148 141
Golf 78 76
------- --------
Total 226 217
------- --------
<PAGE>
Gross profit for the second quarter of fiscal 1999 increased $0.9 million, or
4.3%, from $20.0 million for the second quarter of fiscal 1998 to $20.9 million.
As a percentage of net sales, gross profit decreased 0.3% from 30.8% of net
sales for the second quarter of fiscal 1998 to 30.5% of net sales in the second
quarter of fiscal 1999. The change in sales mix is the primary cause for the
reduction in gross margin, since catalog sales have a higher gross margin than
retail sales.
Gross profit for the first six months of fiscal 1999 increased $5.4 million, or
14.4%, from $37.6 million for the first six months of fiscal 1998 to $43.0
million for the first six months of fiscal 1999. As a percentage of net sales,
gross profit increased 0.7% from 30.2% of net sales for the first six months of
fiscal 1998 to 30.9% of net sales in the first six months of fiscal 1999. Gross
margin for the first six months of fiscal 1999 was consistent with historical
performance parameters given the different levels of gross margin that are
inherent between the retail and catalog businesses
Selling, general and administrative expenses for the second quarter of fiscal
1999 decreased $4.9 million, or 21.2%, from $23.2 million for the second quarter
of fiscal 1998 to $18.3 million for the second quarter of fiscal 1999. The
decrease in selling, general and administrative expenses is primarily related to
the elimination of the non-recurring expenses incurred last year as a result of
the problems encountered in the implementation of the then new warehouse
management system.
Selling, general and administrative expenses for the first six months of fiscal
1999 decreased $8.1 million, or 17.3%, from $46.7 million for the first six
months of fiscal 1998 to $38.6 million for the first six months of fiscal 1999.
The decrease in selling, general and administrative expenses is primarily
related to the elimination of the non-recurring expenses incurred last year as a
result of the problems encountered in the implementation of the then new
warehouse management system.
Interest expense for the second quarter of fiscal 1999, net of interest income,
increased by $0.4 million from $1.4 million in the second quarter of fiscal 1998
to $1.8 million in the second quarter of fiscal 1999. The increase in interest
expense is attributable to the increase in the amount outstanding under the
Company's existing bank credit facility.
Interest expense for the first six months of fiscal 1999, net of interest
income, increased by $1.0 million from $2.4 million in the first six months of
fiscal 1998 to $3.4 million in the first six months of fiscal 1999. The increase
in interest expense is attributable to the increase in the amount outstanding
under the Company's existing bank credit facility.
Liquidity and Capital Resources
The Company believes that projected cash flows from operations in combination
with current available resources are sufficient to meet working capital needs,
such as store openings and debt payments. Achievement of projected cash flows
from operations, however, will be dependent upon the Company's attainment of
sales, gross profit, expense and trade support levels that are consistent with
its financial plans. Such operating performance will be subject to financial,
economic and other factors affecting the industry and operations of the Company,
including factors beyond its control, and there can be no assurance that the
Company's plans will be achieved. If projected cash flows from operations are
not realized, then the Company may have to explore various available
alternatives, including obtaining further modification to its existing lending
arrangements or attempting to locate additional sources of financing.
<PAGE>
The Company's working capital increased by $.7 million, from $11.7 million as of
February 27, 1999 to $12.4 million as of August 28, 1999. The increase resulted
primarily from an increase in accounts receivable of $1.2 million and a decrease
in accounts payable of $13.1 million, which was offset by a decrease in
inventory of $2.2 million, an increase in the net borrowings under the Company's
bank credit facility of $9.4 million, a decrease in accrued expenses of $1.3
million and a decrease in prepaid expenses and other current assets of $3.3
million.
During the first six months of fiscal 1999, the cash used in operating
activities was $6.4 million. The primary uses of the cash were a decrease in
accounts payable of $13.1 million and an increase in accounts receivable of $1.2
million, offset by a decrease in inventories of $2.3 million, a decrease in
prepaid expenses of $3.5 million and a decrease in accrued expenses of $1.3
million.
The net cash used in investing activities was approximately $2.4 million. The
main use of the cash was for the purchase of property and equipment.
The net cash provided by financing activities was approximately $8.9 million and
was primarily attributable to the increase in borrowings on the Company's bank
credit facility of $9.3 million.
During fiscal 1996, the Company entered into a secured line-of-credit agreement
with a bank (the "credit facility") that, as amended during fiscal 1998, expires
on December 31, 2001. The credit facility bears interest at the bank's reference
rate plus .75% (8.75% at August 28, 1999) or LIBOR plus 2.25% (7.52% at August
28, 1999). If for any 12 month rolling period, the fixed charges ratio exceeds
certain limits, as defined, the bank's interest rate on the credit facility is
decreased by .25% for the period immediately following such rolling period. A
commitment fee of .375% per year of the average unused commitment amount, as
defined, is payable monthly. The credit facility allows for borrowing up to $100
million based on a percentage of inventory (the "advance rate"). Borrowings
include 50% of the amounts reserved for outstanding letters of credit.
At August 28, 1999, the Company had approximately $89.5 million of borrowings
outstanding and approximately $1.4 million of letters of credit outstanding. The
Company had approximately $0.6 million in available borrowings under this
facility at August 28, 1999. The bank has a security interest in substantially
all assets of the Company. The bank credit facility agreement contains certain
financial covenants, including, but not limited to, maintaining minimum levels
of tangible net worth, and interest coverage ratios and limitations on capital
expenditures. At August 28, 1999, the Company was in compliance with all
financial covenants.
The borrowing base of the credit facility is to a maximum amount of $100
million. The advance rate is 65% through the last day of May, 1999, 70% from the
first day of June, 1999 through the last day of October, 1999, and 65%
thereafter. The Company is required to maintain an interest coverage ratio of
2.00:1.00, on a rolling 12 month basis for each quarter. The adjusted tangible
net worth as of the last day of the second and third fiscal quarters of 1999 is
required to be $41.0 million, and for the fourth fiscal quarter 1999 and each
fiscal quarter thereafter, adjusted tangible net worth is required to be $42.0
million. Capital expenditures may not exceed $6.0 million for any fiscal year.
<PAGE>
The Company anticipates that it will operate approximately 230 stores by the end
of fiscal 1999. To the extent necessary, the Company will continue to invest in
leasehold improvements and equipment to support its retail store expansion
plans. In addition, the Company's limited 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, of which $290,000 consists of inventory, in the case of a tool store,
and approximately $425,000, of which $300,000 consists of inventory, in the case
of a golf store. In each case, a portion of the inventory investment is financed
with trade credit. The Company opened one new golf store and closed two golf
stores in the second quarter of fiscal 1999. For the first six months of fiscal
1999, the Company opened one new tool store and one new golf store and closed
two tool stores and five golf stores.
YEAR 2000
Like many other companies, the Year 2000 computer issue creates risk for the
Company. If both information technology systems and imbedded technology do not
correctly recognize date information when the year changes to 2000, it could
have an adverse impact on the Company's operations. The Company has updated its
software to accommodate programming logic that properly interprets Year 2000
dates. All software is under maintenance agreements by software companies that
have provided updated, Year 2000 compliant software. A review of embedded
technology used in equipment provided by outside vendors with the manufacturers
of such equipment, is planned to be completed by October, 1999. The Company does
not anticipate difficulty in resolving issues related to embedded technology in
the equipment provided by other manufacturers. The Company has also inquired of
important third party vendors regarding their Year 2000 readiness.
Based on the Company's work to date, the Company believes that it will be Year
2000 compliant and that future costs relating to the Year 2000 issue will not
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
Since the Company relies on third-party suppliers for many systems, products and
services including merchandise, telecommunications and call center support, the
Company could be adversely affected if these suppliers do not make necessary
changes to their own systems and products successfully and in a timely manner.
The Company has made inquiries with major third party suppliers regarding their
Year 2000 compliance. However, there can be no assurance that such third parties
have provided complete or accurate Year 2000 readiness disclosures.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issues in a timely manner. Nevertheless, since it is not
possible to anticipate all possible future outcomes, especially when third
parties are involved, there could be circumstances in which the Company could be
adversely affected. For example, the Company could encounter problems in taking
customer orders, shipping products, invoicing customers or collecting payments.
The amount of potential lost revenue or related consequences as a result of
these unlikely contingencies has not been estimated.
In addressing contingency issues, the Company plans to allocate internal
resources and may retain dedicated consultants and vendor representatives to be
available to take corrective action, if necessary. However, the Company will
adjust and adopt additional plans if situations arise requiring modifications to
existing contingency plans or new contingency plans, as required.
<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) increased
competition, a change in the retail business in the tool and/or golf sectors or
a change in the Company's merchandise mix; (iii) a change in the Company's
advertising, pricing policies or its net product costs after all discounts and
incentives; (iv) the Company's plans and results of operations will be affected
by the Company's ability to manage its growth and inventory; (v) the Company's
ability to achieve its plans and strategies of growth will be dependent on
maintaining adequate bank and other financing: (vi) the timing and effectiveness
of programs dealing with the Year 2000 issue; and (vii) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
Part II - Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
27 Financial Data Schedule (furnished to the Securities and Exchange Commission
for Electronic Data Gathering, Analysis and Retrieval [Edgar] purposes only)
(b) Reports on Form 8-K - not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TREND-LINES, INC.
Registrant
Date: October 7, 1999 /s/ Stanley D. Black
Stanley D. Black
(Chief Executive Officer)
/s/ Ronald L. Franklin
Ronald L. Franklin
(Vice President Finance and
Treasurer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF FINANCIAL CONDITION AT AUGUST 28,
1999 (UNAUDITED) AND THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST
28, 1999 (UNAUDITED AND IS QUALIFIED IN ITS ENTIRIETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> FEB-26-2000 FEB-27-1999
<PERIOD-START> FEB-28-1999 FEB-28-1998
<PERIOD-END> AUG-28-1999 FEB-27-1999
<CASH> 591 540
<SECURITIES> 0 0
<RECEIVABLES> 23,640 22,483
<ALLOWANCES> (201) (213)
<INVENTORY> 128,935 131,219
<CURRENT-ASSETS> 159,026 163,537
<PP&E> 36,548 34,201
<DEPRECIATION> (15,129) (12,788)
<TOTAL-ASSETS> 188,148 192,938
<CURRENT-LIABILITIES> 146,613 151,825
<BONDS> 0 0
0 0
0 0
<COMMON> 111 111
<OTHER-SE> 41,626 40,331
<TOTAL-LIABILITY-AND-EQUITY> 188,148 192,938
<SALES> 139,346 262,550
<TOTAL-REVENUES> 139,346 262,550
<CGS> 96,337 181,577
<TOTAL-COSTS> 96,337 181,577
<OTHER-EXPENSES> 38,574 86,393
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,358 5,580
<INCOME-PRETAX> 1,077 (11,000)
<INCOME-TAX> 420 (3,590)
<INCOME-CONTINUING> 657 (7,410)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 657 (7,410)
<EPS-BASIC> 0.06 (0.70)
<EPS-DILUTED> 0.06 (0.70)
</TABLE>
