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
For fiscal year ended February 26, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required)
For the transition period from __________ to ____________.
Commission File Number: 0-24390
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)
(781) 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 ___
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. Yes X No ___
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, 2000 was
$8,395,884 based on the closing price of $1.44 on that date on the Nasdaq
National Market. As of May 2, 2000, 6,010,411 shares of the registrant's Class A
Common Stock, $.01 par value, were outstanding, and 4,641,082 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.
<PAGE>
PART I
ITEM 1. BUSINESS
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 at
February 26, 2000, operated 120 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 at February 26, 2000,
operated 28 Post Tool stores. The Company purchased the Golf Day name and
mailing list in 1989, mailed its first Golf Day catalog in 1990 and opened a
Golf Day outlet store in its distribution center in January 1991. In January
1998, the Company further expanded its golf retail operations by acquiring 13
Nevada Bob's franchised stores located in New England, which were immediately
converted to Golf Day stores. At February 26, 2000, the Company operated 82 Golf
Day stores. All of the Company's Woodworkers Warehouse and Golf Day retail
stores are located in the Northeast, and Mid-Atlantic regions except for 5 Golf
Day stores located in California. The Company's 28 Post Tool stores are located
in California except for 2 stores 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 (781) 853-0900. As used
herein, the term Company refers to Trend-Lines, Inc. and its wholly owned
subsidiary, Post Tool, Inc.
This Report contains our trademarks and service marks Golf Day(R), Woodworkers
Warehouse(R), Trend-Lines Woodworking Tools & Supplies(R), Golf Express(R),
Carb-Tech(R), Post Tool(R), Reliant(R), Vulcan(R) and Honors(R). Each trademark,
trade name or service mark of any other company appearing in this Report belongs
to its holder.
<PAGE>
The Woodworking Tool Industry
According to the "Woodworking in America"(TM) survey sponsored in 1998 by
the American Woodworker Magazine (the "Woodworking Survey"), approximately 11%
of the United States adult population, or nearly 20.5 million people, are
involved in woodworking activities, spending more than $7.8 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 43% of the total amount spent, or
$3.3 billion, is spent on power tools.
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
According to the National Golf Foundation's 1998 report on golf
participation in the United States, the number of Americans playing golf has
increased 33% to 26.5 million since 1986. The number of golf courses in the U.S.
has increased 24%, to 16,365 courses over the last 13 years. In 1998 golfers
spent $2.2 billion on golf clubs alone and $5.0 billion on other equipment and
related merchandise. The game's growing popularity among juniors has been fueled
by Tiger Woods and women currently 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 and to maximize the Company's future growth as a leading specialty
retailer of power and hand tools and accessories. The key elements of the
Company's business strategy are as follows:
o Selected net expansion of retail store operations. 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.
o 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.
o 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 in
Revere, Massachusetts, with common management and common or parallel
information, telemarketing and distribution systems, in order to achieve
operating efficiencies. The Company also has a distribution center located
in Hayward, California, for its Post Tool operation, which has been
integrated into the Company's management information systems.
o 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.
o 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.
o 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.
o Customer convenience. The Company strives to maximize convenience to its
retail store customers by providing ample parking and fast in-and-out
service.
Recent Developments
On June 12 the Company announced it is planning on divesting itself of its golf
businesses and concentrate on its larger and profitable tool business. The
Company will sell its Golf Day retail stores, Golf Day mail order catalog and
GolfDay.com web site or license its Golf Day retail stores. Currently, the
Company's plans are not definitive, but the Company expects to treat the golf
business as a discontinued operation once plans for divestiture are definitive.
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 Lowes.
The Company's 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.
Woodworkers 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 Adams, Adidas, Callaway, Cleveland, Cobra, Foot-Joy, MacGregor,
Nike, Orlimar, Spalding, Taylor Made, Titleist, Tommy Armour and Wilson. In
addition, the Company sells private label golf merchandise under its Honors
trademark. The Company selects golf products using similar criteria as those
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.
At February 26, 2000, the Company operated 120 Woodworkers Warehouse stores,
28 Post Tool stores and 82 Golf Day stores. Of the Woodworkers Warehouse stores,
32 were located in New York, 24 in Pennsylvania, 18 in Massachusetts, 14 in New
Jersey, 11 in New Hampshire, 8 in Connecticut, 7 in Maine, 3 in Delaware, 2 in
Rhode Island, and 1 in Vermont. Of the Post Tool stores, 26 are located in
California and 2 in Nevada. Of the 82 Golf Day stores, 19 are located in
Massachusetts, 17 in New York, 12 in New Jersey, 8 in Connecticut, 6 in
Pennsylvania, 6 in New Hampshire, 5 in California, 4 in Maine, 3 in Delaware,
and 2 in Rhode Island.
The Company's Woodworkers Warehouse and Golf Day retail store operations are
currently divided into regional districts, with each district containing from 17
to 23 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 1999, the Company closed 3
tool stores as well as 8 golf stores.
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.
All new employees attend the Company's in-house training program, Trend-Lines
University. Skills are further enhanced through on-the-job training combined
with the use of Company-developed manuals. 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 9.7 million copies
of its Trend-Lines catalog and approximately 10.0 million copies of its Golf Day
catalog during fiscal year 1999 The Trend-Lines and Golf Day catalog mailing
lists total approximately 1.1 million and 1.0 million customers (comprised of
selected previous buyers), respectively, and are supplemented with 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.
E-Commerce
In fiscal 1999, the Company launched its WoodworkersWarehouse.com,
GolfDay.com and Trend-Lines.com websites. These websites augment the Company's
other promotional activities and demonstrate the Company's emerging e-commerce
capabilities.
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 1999, one of the Company's vendors accounted for approximately 8.8% of
the Company's purchases. The Company believes its vendor relationships are
satisfactory.
In fiscal 1999, approximately 9% of the Company's tool products and 2% 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, Hong
Kong, Sweden, Japan and Germany. This portion of the Company's business is
subject to 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 customer service operation. The distribution center serves
the Woodworkers Warehouse and Golf Day retail stores and the woodworking and
golf catalogs. The Company leases a 51,000 square foot warehouse facility in
Chelsea, Massachusetts, which is used for additional storage and processing of
product returns. In addition, the Company leases a 48,000 square foot
distribution center in Hayward, California for its Post Tool stores.
The geographic concentration of its stores facilitates 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 of 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 3.1 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.
Competition
The Company's tool and golf businesses are highly competitive and compete
with a number of other retailers, mail order catalogs, internet websites 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 February 26, 2000, the Company employed 1,606 persons, of
whom 971 were fulltime and 635 were part time. The Company considers its
employee relations to be satisfactory.
Executive Officers
Name Age Position
---- --- --------
Stanley D. Black 63 Chairman of the Board of Directors and
Chief Executive Officer
Richard Griner 56 President, Chief Operating Officer and
Director
Ronald L. Franklin 54 Executive Vice President, CFO, and Director
Gerald Roth 59 Executive Vice President, Retail
Walter S. Spokowski 43 Executive Vice President, Merchandising and
Director
Kathleen Harris 41 Vice President, Human Resources
Liz McGowan 35 Vice President, Advertising
John A. McGregor 51 Vice President, Golf Day Merchandising
Jayne Pendergast 44 Vice President, Information Systems
Norman W. Zagorsky 62 Vice President, Purchasing
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.
Ronald L. Franklin has been an Executive Vice President and Chief Financial
Officer since April 2000, a Director of the Company since May 1994, and has
served as Treasurer since April 1994, and Vice President, Finance since March
1987.
Gerald Roth joined Trend-Lines as Executive Vice President of Retail in
January 2000. He has managed Department, Discount, and Specialty Stores. Most
recently, he was Executive Vice President of World Duty Free Americas, the
Airport Division.
Walter S. Spokowski joined Trend-Lines as Executive Vice President,
Merchandising in March, 1997 and has served as a Director of the Company since
October 1999. 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.
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.
Liz McGowan has been Vice President, Advertising since April 2000. Ms.
McGowan joined Trend-Lines in 1997 as Manager of Retail Advertising. Prior to
joining Trend-Lines, she was a Marketing Manager for Lechmere.
John A. McGregor has been Vice President, Golf Day Merchandising since
August 1993.
Jayne Pendergast has been Vice President, Information Systems since June,
1998. From April, 1997 to May, 1998, Ms. Pendergast was Director, Applications
Development for Intrepid Systems. From 1993 to 1997, she was Director, Systems
Development for Casual Corner.
Norman W. Zagorsky has been Vice President, Purchasing since January 1997
and Vice President, Trend-Lines Merchandising from March 1987 to January, 1997.
ITEM 2. PROPERTIES
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 with 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 processing of product returns.
At February 26, 2000, the Company operated 230 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. At February 26, 2000, the
Company's store leases, assuming the Company does not exercise its lease renewal
options, were scheduled to expire as follows:
Year Lease Number of Store Leases
Terms Expire Expiring
2000-2002 91
2003-2005 109
2006-2007 11
2008 and later 10
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None
<PAGE>
PART II
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.
High Low
Fiscal Year Ended February 26, 2000
First Quarter $3.06 $1.88
Second Quarter $3.06 $1.88
Third Quarter $2.41 $1.44
Fourth Quarter $2.25 $1.28
Fiscal Year Ended February 27, 1999
First Quarter $9.13 $4.81
Second Quarter $5.88 $2.38
Third Quarter $3.13 $1.25
Fourth Quarter $5.00 $1.75
Fiscal Year Ended February 28, 1998
First Quarter $7.44 $5.00
Second Quarter $7.75 $6.00
Third Quarter $8.50 $6.38
Fourth Quarter $7.63 $6.13
At May 2, 2000, the last reported sales price of the Class A Common Stock
on the Nasdaq National Market was $1.44 per share. At May 2, 2000 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain financial data with respect to the
Company for each of the last five fiscal years.
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------
(In thousands, except per share data)
February 26, February 27, February 28, March 1, March 2,
2000 1999 1998 1997 1996 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $270,631 $262,550 $231,143 $208,582 $174,795
Cost of sales 187,391 181,577 157,129 139,871 117,447
-------- -------- -------- -------- --------
Gross profit $83,240 80,973 74,014 68,711 57,348
Selling, general and administrative expenses 82,055 86,393 63,483 61,045 59,845
Restructuring charge - - - - 1,397
-------- -------- -------- -------- --------
Income (loss) from operations 1,185 (5,420) 10,531 7,666 (3,894)
Interest expense, net 7,185 5,580 3,239 2,355 1,654
-------- -------- -------- -------- --------
Income (loss) before provision (benefit)
for income taxes (6,000) (11,000) 7,292 5,311 (5,548)
Provision (benefit) for income taxes 1,587 (3,590) 2,844 2,061 (2,229)
-------- -------- -------- -------- --------
Net income (loss) (7,587) (7,410) $4,448 $3,250 ($3,319)
======== ======== ======== ======== ========
Basic net income (loss) per share (2) ($0.71) ($0.70) $0.42 $0.30 ($0.33)
Diluted net income (loss) per share (2) ($0.71) ($0.70) $0.40 $0.29 ($0.33)
======== ======== ======== ======== ========
Basic weighted average of shares
outstanding (2) 10,651 10,648 10,588 10,973 10,163
Diluted weighted average number of shares
outstanding (2) 10,651 10,648 11,122 11,255 10,163
Store Operating Data:
Net store sales (000's) $234,028 $217,031 $171,612 $140,342 $98,515
Percentage increase (decrease) in
comparable net store sales (3) 6.7% 1.3% 9.8% 19.6% (0.3%)
Number of stores at end of period
Tool stores 148 149 133 119 111
Golf stores 82 82 71(4) 40 30
Catalog Operating Data:
Net catalog sales $36,603 $45,519 $59,531 $68,240 $76,280
February 26, February 27, February 28, March 1, March 2,
2000 1999 1998 1997 1996 (1)
---- ---- ---- ---- --------
Balance Sheet Data:
Working capital $5,332 $11,712 $21,774 $30,060 $31,406
Total assets 208,863 192,938 155,452 121,054 100,658
Total debt 98,638 81,851 45,760 27,757 21,292
Stockholders' equity 32,857 40,442 47,751 43,406 42,288
</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 a 53 week year and includes three extra days compared
to the prior year.
(2) 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 6 to Notes to Consolidated Financial Statements.
(3) Calculated using net sales of comparable stores opened for at least a
13 month period.
(4) Reflects the acquisition in January 1998 of 13 golf stores.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Recent Developments
On June 12 the Company announced it is planning on divesting itself of its golf
businesses and concentrate on its larger and profitable tool business. The
Company will sell its Golf Day retail stores, Golf Day mail order catalog and
GolfDay.com web site or license its Golf Day retail stores. Currently, the
Company's plans are not definitive, but the Company expects to treat the golf
business as a discontinued operation once plans for divestiture are definitive.
General
In recent years, the Company's net sales have been primarily attributable to
its retail store business. At February 26, 2000, the Company operated 148
Woodworkers Warehouse and Post Tool stores and 82 Golf Day stores.
The following table presents net sales and gross margin data of the Company
for the periods indicated:
Fiscal Years Ended
February 26, February 27, February 28
2000 1999 1998
---- ---- ----
(In thousands, except percentage data)
Net Sales:
Retail
Tools $156,903 $148,444 $133,000
Golf 77,125 68,587 38,612
Catalog
Tools 21,281 27,945 34,451
Golf 15,322 17,574 25,080
------ ------ ------
Total $270,631 $262,550 $231,143
======== ======== ========
Gross Margin 30.8% 30.8% 32.0%
==== ==== ====
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 stores. 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. During fiscal 1999,
the Company's gross profit as a percentage of net sales remained flat as
compared to fiscal 1998, primarily as a result of the Company's changing sales
mix, offset by an increase in gross profit percentage in both the retail and
catalog business: retail sales increased to 86.5% of total sales as compared to
82.7% of 1998 total sales.
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:
Fiscal Years Ended
----------------------------------------------
February 26, February 27, February 28,
2000 1999 1998
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 69.2 69.2 68.0
------------ ------------ ------------
Gross Profit 30.8 30.8 32.0
Selling, General and
Administrative Expenses 30.3 32.9 27.4
------------ ------------ ------------
(Loss) Income From Operations 0.5 (2.1) 4.6
Interest Expense, net 2.7 2.1 1.4
------------ ------------ ------------
(Loss) Income Before Income Taxes (2.2)% (4.2)% 3.2%
------------ ------------ ------------
Fiscal 1999 versus Fiscal 1998
Net sales for fiscal 1999 increased by $8.1 million, or 3.1%, from $262.5
million for fiscal 1998 to $270.6 million. Net retail sales for fiscal 1999
increased $17.0 million, or 7.8%, from $217.0 million for fiscal 1998 to $234.0
million. However, net catalog sales for fiscal 1999 decreased $8.9 million, or
19.6%, from $45.5 million for the fiscal 1998 to $36.6 million for fiscal 1999.
The decrease in net catalog sales was attributable to the Company's continuing
penetration of retail stores in areas only previously served by its catalog. The
Company plans to continue its practice of not mailing catalogs to areas where it
operates retail stores. The revenue growth of retail stores is attributable to
the maturation of the Company's retail store base. For fiscal 1999, comparable
net store sales for tool and golf stores, increased by 3.9% and 13.2%,
respectively, as compared to fiscal 1998. Comparable net sales for all stores
increased by 6.7% for fiscal 1999.
<PAGE>
Following is a retail store summary.
Fiscal Years Ended
-------------------------------------------
February 26, February 27, February 28,
2000 1999 1998
---- ---- ----
Stores operated at the beginning of the
fiscal year
Tools 149 133 119
Golf 82 71 40
-----------------------------------------
Total 231 204 159
Stores opened during the fiscal year
Tools 2 22 18
Golf 8 14 33
-----------------------------------------
Total 10 36 51
Stores closed during the fiscal year
Tools 3 6 4
Golf 8 3 2
-----------------------------------------
Total 11 9 6
Stores operated at the end of the
fiscal year
Tools 148 149 133
Golf 82 82 71
-----------------------------------------
Total 230 231 204
=========================================
Gross profit for fiscal 1999 increased $2.2 million, or 2.8%, from $81.0
million for fiscal 1998 to $83.2 million for fiscal 1999. As a percentage of net
sales, gross profit remained constant at 30.8% for both fiscal years 1998 and
1999. This is primarily a result of the Company's changing sales mix, offset by
an increase in gross profit percentage in both the retail and catalog business.
Since the catalog business has higher gross margins than retail store
operations, future gross margins will decrease as catalog sales decrease.
Selling, general and administrative expenses for fiscal 1999 decreased
$4.3 million, or 5.0%, from $86.4 million for fiscal 1998 to $82.1 million for
fiscal 1999. As a percentage of net sales, selling, general and administrative
expenses decreased 2.6% from 32.9% of net sales in fiscal 1998 to 30.3% of net
sales in fiscal 1999. The dollar decreases in selling, general and
administrative expenses are primarily related to the Company's slowing of retail
expansion, as well as one time expenditures incurred in fiscal 1998 related to
implementation of our warehouse management system. The decrease in selling,
general and administrative expenses as a percentage of net sales was primarily
attributable to these same factors, coupled with a modest increase in net sales.
Interest expense, net of interest income, for fiscal 1999 increased by
$1.6 million from $5.6 million in fiscal 1998 to $7.2 million in fiscal 1999.
The increase in interest expense was attributable to the increase in the amount
outstanding under the Company's bank credit facility.
The Company experienced a fourth quarter loss in fiscal 1999 due to a
number of factors including lower than expected sales, unusually high inventory
shrink recognized as a result of year end physical inventories and higher than
anticipated advertising costs. In addition, the Company provided a valuation
reserve against previously recognized deferred tax assets due to the uncertainty
of realization.
Fiscal 1998 versus Fiscal 1997
Net sales for fiscal 1998 increased by $31.4 million, or 13.6%, from
$231.1 million for fiscal 1997 to $262.5 million. Net retail sales for fiscal
1998 increased $45.4 million, or 26.5%, from $171.6 million for fiscal 1997 to
$217.0 million. However, net catalog sales for fiscal 1998 decreased $14.0
million, or 23.5%, from $59.5 million for the fiscal 1997 to $45.5 million for
fiscal 1998. The decrease in net catalog sales was attributable to the Company's
opening of retail stores in areas only previously served by its catalog as well
as to distribution difficulties experienced during the first half of fiscal
1998, which were a result of problems encountered during the implementation of a
warehouse management system. The Company plans to continue its practice of not
mailing catalogs to areas where it operates retail stores. The store base
expanded by 13.2% from 204 locations at the end of fiscal 1997 to 231 locations
at the end of fiscal 1998. For fiscal 1998, comparable net store sales for tool
and golf stores, increased by .5% and 4.3%, respectively, as compared to fiscal
1997. Comparable net sales for all stores increased by 1.3% for fiscal 1998.
Gross profit for fiscal 1998 increased $7.0 million, or 9.4%, from $74.0
million for fiscal 1997 to $81.0 million for fiscal 1998. As a percentage of net
sales, gross profit decreased 1.2% from 32.0% of net sales for fiscal 1997 to
30.8% for fiscal 1998. The decrease in gross profit as a percentage of net sales
was primarily due to the Company's changing sales mix, given the percentage
increase in retail store sales. Since the catalog business has higher gross
margins than retail store operations, gross margins will decrease as catalog
sales decrease.
<PAGE>
Selling, general and administrative expenses for fiscal 1998 increased
$22.9 million, or 36.1%, from $63.5 million for fiscal 1997 to $86.4 million for
fiscal 1998. As a percentage of net sales, selling, general and administrative
expenses increased 5.4% from 27.4% of net sales in fiscal 1997 to 32.9% of net
sales in fiscal 1998. The dollar increases in selling, general and
administrative expenses are primarily related to the Company's continuing retail
expansion to 231 locations, which is a 13% increase in the number of stores
operated, as well as due to distribution difficulties experienced during the
first half of fiscal 1998, which were a result of problems encountered during
the implementation of a warehouse management system. The increase in selling,
general and administrative expenses as a percentage of net sales was primarily
attributable to lower than anticipated sales, coupled with increases in selling
and administrative expenses related to new stores and resolution of warehouse
management implementation issues.
Interest expense, net of interest income, for fiscal 1998 increased by $2.3
million from $3.2 million in fiscal 1997 to $5.6 million in fiscal 1998. The
increase in interest expense was attributable to the increase in the amount
outstanding under the Company's bank credit facility.
Liquidity and Capital Resources
The Company realized a small profit from operations during fiscal 1999 but
a net loss after interest expenses and taxes. The Company incurred operating
losses during fiscal 1998. In fiscal 1999, the Company used funds provided by
its bank credit facility and demand borrowings from the Company's principal
stockholders to meet its cash operating needs including the net loss incurred in
fiscal 1999. The bank credit facility agreement during fiscal 1999 contained
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 February 26, 2000, the Company was not in compliance
with net worth and interest coverage financial covenants. However, the Company
has received a waiver and amendment of compliance covenants. At February 26,
2000, the Company had approximately $97.9 million of borrowings outstanding and
approximately $.1 million of letters of credit outstanding. The Company had
approximately $2.1 million in available borrowings under this facility at
February 26, 2000. The bank has a security interest in substantially all assets
of the Company.
Pursuant to an amendment and waiver dated as of June 9, 2000, the bank
amended the credit facility with respect to the financial covenants and advance
rates for future periods.
The commitment level and expiration date of the credit facility remained
unchanged at $100 million and December 31, 2001. The amended covenants require
the Company to maintain modified interest coverage and fixed charge ratios
quarterly through February 24, 2001 and for the year ended February 24, 2001.
The Company shall not exceed inventory levels of $135 million as of August 26,
2000 and November 25, 2000 and $127.5 million as of January 27, 2001. In
addition, there will be no net new store openings allowed and the Company will
retain a financial advisor through February 24, 2001.
The credit facility will bear interest at the bank's reference rate plus
0.75% or LIBOR plus 2.25%. The credit facility allows for borrowing up to $100
million based on a percentage of inventory (the "advance rate"). Borrowings
include 50% of the amount reserved for outstanding letters of credit.
The credit facility also gives the bank warrants for 200,000 shares of the
Company's class A common stock, exercisable at the lowest price during the
60-day period starting June 9, 2000.
During the fourth quarter of fiscal 1999, the Company's chief executive
officer/principal stockholder and his spouse, who is also a principal
stockholder of the Company, made interest-free, unsecured demand loans to the
Company in the aggregate amount of $3.0 million. All these loans were repaid at
February 26, 2000. The Company expects to obtain additional unsecured demand
loans from either or both of these lenders from time to time which, if made, are
expected to be repayable without interest.
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. In addition, the
Company borrows funds from its bank on a variable rate basis and continued
compliance with loan covenants is partially dependent on relative interest rate
stability. If projected cash flows from operations are not realized, or if there
are significant increases in interest rates, 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.
In the separate section of management's discussion and analysis entitled
"Recent Developments," the Company announced plans to divest of its golf
businesses. While the Company's plans for divestiture are not yet finalized, the
Company believes that it can successfully accomplish the Golf Store divestiture
during fiscal 2000, while at the same time meeting the operating cash needs of
the continuing woodworking business. However, there can be no assurance that the
divestiture plan, once finalized, can be accomplished without further
modifications to the Company's financing arrangements. Should the Company be
unable to consummate a sale transaction on favorable terms with a buyer, the
Company plans to explore other alternatives for divestiture. The impact of
various alternatives on the Company's results of operations and cash flows could
vary materially, and the golf business and the Company's results of operations
and its ability to meet its operating cash needs could be adversely impacted.
The Company's working capital decreased by $6.4 million, from $11.7
million as of February 27, 1999 to $5.3 million as of February 26, 2000. The
decrease resulted primarily from an increase in the net borrowings under the
Company's bank credit facility of $17.7 million, and decreases in accounts
receivable and prepaid expense/other assets of $6.2 million and $1.9 million
respectively, all of which was partially offset by a $19.5 million increase in
inventory.
During fiscal 1999, the cash used in operating activities was
approximately $12.6 million. The primary uses of the cash were for a net loss of
$7.6 million and a $19.5 million increase in inventories, all of which was
offset by a $5.8 million decrease in prepaid expenses and other current assets,
a $2.9 million decrease in accounts receivable, and $ 5.3 million in non-cash
depreciation and amortization.
The net cash used in investing activities was approximately $3.6 million.
The main use of the cash was for the purchase of equipment required for
expansion of the Company's information systems capabilities and Year 2000
compliance.
The net cash provided by financing activities was approximately $16.8
million, primarily attributable to the increase in borrowings on the Company's
bank credit facility of $17.7 million.
<PAGE>
YEAR 2000
Like many other companies, the Year 2000 computer issue created risk for
the Company. If, when the date changed from December 31, 1999 to January, 2000,
either information technology systems or embedded technology did not correctly
recognize data information, it could have had an adverse impact on the Company's
operations. Prior to January 1, 2000, the Company updated its software to
accommodate programming logic that property interprets dates in the year 2000
and beyond. All software is under maintenance agreements to software companies
that have provided updated software that properly recognizes the post January,
2000 dates. A review of embedded technology used in equipment provided by
outside vendors with the manufacturers of such equipment was completed by
November, 1999.
Upon the advent of January 1, 2000, the Company did not register any
malfunctions related to its own technology, distribution systems or other
operations and does not foresee any issues related to embedded technology in the
equipment provided by other manufacturers. The Company also inquired of
important third party vendors regarding their Year 2000 readiness and all such
third party vendors appear to be continuing operations without any interruption
or visible adverse effect.
Based on the Company's work to date and its continuing uninterrupted
operation on and after January 1, 2000, the Company believes that it was
successful in ensuring the Year 2000 compliance of all systems 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 have been adversely affected if these suppliers had
not made all necessary changes to their own systems and products unsuccessfully
and in a timely manner. Prior to the new year, the Company made inquiries with
major third party suppliers regarding their Year 2000 compliance and although
there can be no assurance that such third parties have provided complete or
accurate Year 2000 readiness disclosures or that such third parties will
continue their uninterrupted operation, it appears that no major or critical
systems operated by third parties failed as a result of the date change.
Management of the Company believes it has an effective program in place to
resolve any remaining 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 would encounter future
problems in taking customer orders, shipping products, invoicing customers or
collecting payments. The amount of potential loss 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
continued compliance with the financial covenants under its bank credit
facility, as the same may be in effect from time to time; (vi) the Company's
ability to achieve its plans and strategies of growth will be dependent on
maintaining adequate bank and other financing; (vii) 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 February 26, 2000.
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.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of February 26, 2000 and
February 27, 1999..................................................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended
February 26, 2000, February 27, 1999 and February 28, 1998............ F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended February 26, 2000, February 27, 1999 and February 28, 1998...... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 26, 2000, February 27, 1999, and February 28, 1998........... F-6
Notes to Consolidated Financial Statements................................ F-7
(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.
(A)(3) EXHIBITS
Exhibit
Number Reference
------- ---------
** 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, as amended. 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.
** 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 19, D
1994 between Post Tool, Inc. and the Registrant.
** 10.15 Asset Purchase Agreement dated as of December 31, F
1997 between Golf Acquisitions Limited Partnership
and the Registrant
** 10.16 Amended and Restated Loan and Security G
Agreement dated February 23, 1999
10.17 Employment Agreement, dated December 13, 1996, Filed
between Richard H. Griner and the Registrant herewith
** 21.01 Subsidiaries of the Registrant. E
23.01 Consent of Arthur Andersen LLP. Filed
herewith
27.00 Financial Data Schedule Filed herewith only
in electronic form
<PAGE>
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.
F Incorporated by reference to Exhibit 10.15 to the Company's annual report
on Form 10-K for the fiscal year ended February 28, 1998.
G Incorporated by reference to Exhibit 10.16 to the Company's annual report
on Form 10-K for fiscal year ended February 27, 1999.
* 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
<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: June 15, 2000 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.
SIGNATURE TITLE DATE
/s/ STANLEY D. BLACK Director and Chief Executive Officer June 15, 2000
--------------------
Stanley D. Black
/s/ RONALD L. FRANKLIN Executive Vice President, Finance, June 15, 2000
---------------------- Chief Financial Officer and Director
Ronald L. Franklin
/s/ RICHARD GRINER President, Chief Operating Officer June 15, 2000
------------------ and Director
Richard Griner
/s/ WALTER S. SPOKOWSKI Executive Vice President, Merchandising June 15, 2000
----------------------- and Director
Walter S. Spokowski
/s/ RICHARD A. MANDELL Director June 15, 2000
----------------------
Richard A. Mandell
/s/ IRWIN WINTER Director June 15, 2000
----------------
Irwin Winter
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of February 26, 2000 and
February 27, 1999 F-3
Consolidated Statements of Operations for the Fiscal Years Ended
February 26, 2000, February 27, 1999, and February 28, 1998 F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended
February 26, 2000, February 27, 1999, and February 28, 1998 F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 26, 2000, February 27, 1999, and February 28, 1998 F-6
Notes to Consolidated Financial Statements F-7
<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 February 26, 2000 and
February 27, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended February 26, 2000,
February 27, 1999, and February 28, 1998. These financial statements and
accompanying schedules 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 auditing standards generally accepted
in the United States. 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 February 26, 2000, and February 27, 1999, and the results of
their operations and their cash flows for the years ended February 26, 2000,
February 27, 1999 and February 28, 1998, in conformity with accounting
principles generally accepted in the United States.
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
May 2, 2000 (except with respect to the
matters discussed in Notes 5 and 16, as to which the
date is June 12, 2000).
F-2
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
February February
26, 27,
2000 1999
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 1,054 $ 540
Accounts receivable, net 19,374 22,270
Inventories 157,028 131,219
Prepaid expenses and other current assets 3,664 9,508
-------- --------
Total current assets 181,120 163,537
PROPERTY AND EQUIPMENT, NET 20,352 21,413
INTANGIBLE ASSETS, NET 6,316 6,621
OTHER ASSETS 1,075 1,367
-------- --------
$208,863 $192,938
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank credit facility $ 97,890 $ 80,152
Current portion of capital lease obligations 530 1,028
Accounts payable 70,265 62,589
Accrued expenses 7,103 8,056
-------- --------
Total current liabilities 175,788 151,825
-------- --------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 218 671
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A --
Authorized - 20,000,000 shares
Issued - 6,510,411 and 6,469,553 shares at
February 26, 2000 and February 27, 1999,
respectively 65 64
Class B --
Authorized - 5,000,000 shares
Issued and outstanding - 4,641,082 and
4,681,082 shares at February 26, 2000
and February 27, 1999, respectively 47 47
Additional paid-in capital 41,626 41,625
Retained earnings (6,421) 1,166
Less: 500,000 Class A shares held in treasury at
February 26, 2000 and February 27, 1999, at cost (2,460) (2,460)
-------- --------
Total stockholders' equity 32,857 40,442
-------- --------
$208,863 $192,938
======== ========
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
February 26, February 27, February 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 270,631 $ 262,550 $ 231,143
COST OF SALES 187,391 181,577 157,129
------------ ------------ ------------
Gross Profit 83,240 80,973 74,014
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES $ 82,055 $ 86,393 $ 63,483
------------ ------------ ------------
(Loss) Income from operations 1,185 (5,420) 10,531
INTEREST EXPENSE, NET $ 7,185 $ 5,580 $ 3,239
------------ ------------ ------------
(Loss) Income before (benefit) provision for income taxes (6,000) (11,000) 7,292
(BENEFIT) PROVISION FOR INCOME TAXES $ 1,587 $ (3,590) $ 2,844
------------ ------------ ------------
Net (Loss) income $ (7,587) $ (7,410) $ 4,448
============ ============ ============
BASIC NET (LOSS) INCOME PER SHARE $ (0.71) $ (0.70) $ 0.42
============ ============ ============
DILUTED NET (LOSS) INCOME PER SHARE $ (0.71) $ (0.70) $ 0.40
============ ============ ============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 10,651,144 10,648,366 10,588,021
============ ============ ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 10,651,144 10,648,366 11,122,417
============ ============ ============
</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 AND PER 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, MARCH 1, 1997 6,302,534 $ 63 4,750,026 $ 47 $41,318 $ 4,128 440,000 $(2,150) $ 43,406
Conversion of Class B shares to
Class A shares 11,960 - (11,960) - - - - - -
Proceeds from exercise of stock
options 70,684 1 - - 206 - - - 207
Treasury stock purchase - - - - - - 60,000 (310) (310)
Net income - - - - - 4,448 - - 4,448
-------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 1998 6,385,178 $ 64 4,738,066 $ 47 $41,524 $ 8,576 500,000 $(2,460) $ 47,751
Conversion of Class B shares to
Class A shares 56,984 - (56,984) - - - - - -
Proceeds from exercise of stock
options 27,391 - - - 101 - - - 101
Net loss - - - - - (7,410) - - (7,410)
-------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 27, 1999 6,469,553 $ 64 4,681,082 $ 47 $41,625 $ 1,166 500,000 $(2,460) $ 40,442
Conversion of Class B shares to
Class A shares 40,000 - (40,000) - - - - - -
Proceeds from exercise of stock
options 858 1 - - 1 - - - 2
Net loss - - - - - (7,587) - - (7,587)
-------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 26, 2000 6,510,411 $ 65 4,641,082 $ 47 $41,626 $ (6,421) 500,000 $(2,460) $ 32,857
=================================================================================================
</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
February 26, February 27, February 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (7,587) $ (7,410) $ 4,448
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Depreciation and amortization 5,296 4,738 2,836
Deferred income taxes 1,587 (1,075) 216
Accounts receivable 2,896 (3,724) (6,391)
Inventories (25,809) (29,047) (14,296)
Prepaid expenses and other current assets 3,826 (1,643) (405)
Accounts payable 7,676 8,759 5,695
Accrued expenses (522) 62 904
------------ ------------ ------------
Net cash (used in) operating activities (12,637) (29,340) (6,993)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,802) (5,830) (7,188)
Proceeds from sale of property and equipment - 16 73
Acquisition, net of cash acquired - - (4,064)
Decrease in other assets 246 (568) -
------------ ------------ ------------
Net cash (used in) investing activities (3,556) (6,382) (11,179)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank credit facilities 17,738 36,351 18,605
Net payments on capital lease obligations (1,033) (859) (667)
Proceeds from exercise of stock options 2 101 207
Purchases of treasury stock - - (310)
------------ ------------ ------------
Net cash provided by financing activities 16,707 35,593 17,835
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 514 (129) (337)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 540 669 1,006
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,054 $ 540 $ 669
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 6,793 $ 5,489 $ 3,212
============ ============ ============
Income taxes $ 435 $ 1,912 $ 2,418
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital lease obligations $ 83 $ 598 $ 65
============ ============ ============
Summary of entity acquired -
Fair value of assets acquired - - 9,273
------------ ------------ ------------
Liabilities assumed - - 5,209
------------ ------------ ------------
Cash paid, net of cash acquired $ - $ - $ 4,064
============ ============ ============
</TABLE>
See 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, Pennsylvania and California and its nationally
distributed mail-order catalog.
(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.
(b) Fiscal Year
The Company's fiscal year-end is the Saturday closest to the last day
of February Fiscal year 1999 ended on February 26, 2000, Fiscal year
1998 ended on February 27, 1999 and Fiscal year 1997 ended on February
28, 1998. For interim reporting purposes, the Company closes its books
on the Saturday of the thirteenth week of the fiscal quarter.
(c) 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.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(e) Revenue Recognition
Revenue from retail operations is recognized at the time of sale.
Revenue from catalog sales is recognized upon shipment to the
customer.
(f) Inventories
The Company values inventories, which consist of merchandise held for
resale, at the lower of cost (weighted average) or market.
(g) Prepaid Catalog Expenses
The Company capitalizes direct costs relating to the production and
distribution of its mail-order catalogs. These costs are charged to
operations over the period during which revenues are derived from the
mailings which is predominately 1 year or less from the date of
mailing.
(h) Store Preopening Costs
The Company expenses, as incurred, all preopening costs related to
each new retail store location, in accordance with (SOP) 98-5,
Reporting on Cost of Start-up Activities.
(i) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed under both the straight-line and accelerated
methods in amounts that allocate the cost of all assets over their
estimated useful lives.
<PAGE>
Estimated
Asset Classification Useful Lives
Equipment 5 - 10 years
Equipment under capital leases Life of lease, or life of asset,
whichever is shorter
Furniture and fixtures 10 years
Building 39.5 years
Leasehold improvements Initial lease term or life
of asset, whichever is shorter
(j) 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.
(k) 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.
(l) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable 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.
(m) 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 from credit card fraud under these
agreements. 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.
(n) Income Taxes
Income taxes 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.
(o) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128 Earnings Per Share, which changed the method of calculating
earnings per share. SFAS No. 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. The Company adopted
SFAS 128 in the fourth quarter of fiscal 1997. All prior period per
share amounts have been restated to comply with SFAS No. 128.
Potentially dilutive securities include outstanding options under the
Company's stock option plan. For the fiscal years ended February 26,
2000 and February 27, 1999, the diluted earnings per share calculation
has been computed using the basic weighted average shares outstanding,
as the effect of options is anti-dilutive. The number of potentially
dilutive shares excluded from the earnings per share calculation was
28,283 for the fiscal year ended February 26, 2000 and 198,094 for the
fiscal year ended February 27, 1999. Below is a summary of the shares
used in calculating basic and diluted earnings per share:
<PAGE>
Fiscal Years Ended
February 26, February 27, February 28,
2000 1999 1998
Weighted average number of shares of
common stock outstanding 10,651,144 10,648,366 10,588,021
Dilutive stock options 0 0 534,396
---------- ---------- ----------
Shares used in calculating diluted
earnings per share 10,651,144 10,648,366 11,122,417
========== ========== ==========
(p) 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 that 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
commensurate with the risk involved. At February 26, 2000, no such
impairment of assets was indicated.
Goodwill represents the excess of the purchase price over the fair
market value of identified net assets acquired. Goodwill is being
amortized using the straight-line method over a period of 20 years,
the estimated useful life. The Company recognized $351,000 of goodwill
amortization during fiscal 1999 and fiscal 1998. The Company
continually evaluates whether events and circumstances have occurred
that indicate that the remaining estimated useful life of goodwill may
not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses estimates of
undiscounted operating cash flow over the remaining life of the
goodwill to measure whether goodwill is recoverable. As of February
26, 2000, there have been no write-downs of goodwill.
(q) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. The statement established accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts and for
hedging activities) be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedging accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of
Statement No. 133, which deferred the effective date of SFAS No. 133
by one year. This statement shall be effective for all fiscal quarters
for all fiscal years beginning after June 15, 2000. SFAS No. 133 must
be applied to (i) derivative instruments and (ii) certain derivative
instruments embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997. The Company does
not anticipate any material impact on its financial statements from
the adoption of SFAS No. 133.
(3) ACQUISITION
Effective December 31, 1997, the Company acquired substantially all of the
assets and liabilities of Golf Acquisition Limited Partnership (GALP) for
approximately $4.0 million in cash. The Company accounted for the
acquisition of GALP using the purchase method of accounting and the
purchase price was allocated to the net liabilities assumed based upon
their estimated fair market values. The operating results of this business
are included in the consolidated statements of operations from the date of
acquisition.
The excess purchase price over net liabilities assumed (goodwill) was
computed as follows
Purchase Price (including expenses), net of cash acquired $ 4,064,000
Plus-fair market value assigned to net liabilities
Inventory 1,973,000
Other assets 269,000
Accounts payable (4,235,000)
Accrued liabilities (974,000)
------------
(2,967,000)
Goodwill $ 7,031,000
===========
The following unaudited pro form information (rounded to thousands except
share and per share amounts) shows the results of the Company's operations
for the year ended February 28, 1998, as if the acquisition had occurred
on March 2, 1997.
Revenues $ 250,888
Income from operations 10,948
Net income 4,551
Pro forma basic net income per share $0.43
Pro forma diluted net income per share $0.41
Basic weighted average shares outstanding 10,588,021
Diluted weighted average share outstanding 11,122,417
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisition taken place as of March 2, 1997 or the results that may occur
in the future. Furthermore, the pro forma results do not give effect to
all cost savings or incremental costs that may occur as a result of the
integration and consolidation of the companies.
<PAGE>
(4) INCOME TAXES
The components of the (benefit) provision for income taxes shown in the
consolidated statements of operations are as follows (in thousands):
Fiscal Years Ended
February 26, 2000 February 27, 1999 February 28, 1998
Current
Federal $0 ($3,400) $2,454
State 0 885 174
----------------- ----------------- -----------------
0 ($2,515) $2,628
----------------- ----------------- -------------
Deferred
Federal 221 173 (123)
State 1,366 (1,248) 339
----------------- ----------------- -------------
1,587 (1,075) 216
----------------- ----------------- -------------
$1,587 ($3,590) $2,844
================= ================= =============
The reconciliation of the federal statutory rate to the benefit
(provision) for income taxes is as follows:
Fiscal Years Ended
February 26, 2000 February 27, 1999 February 28, 1998
Income tax (benefit) provision
at federal statutory rate (34.0%) (34.0%) 34.0%
State taxes, net of federal
benefit (6.0%) (4.4%) 5.0%
Other, net (4.2%) 5.8% -
Increase in valuation
allowance 70.7% - -
----------------- ----------------- -----------------
26.5% (32.6%) 39.0%
================= ================= =================
Significant items giving rise to deferred tax assets and deferred tax
liabilities at February 26, 2000 and February 27, 1999 are as follows:
February 26, 2000 February 27, 1999
Inventories $1,389 $1,206
Prepaid catalog (833) (710)
Cash discount (766)
State operating loss carryforward 1,886 1,300
Federal operating loss carryforward 2,155
Other nondeductible reserves and accruals 540 82
Depreciation and amortization (76) (290)
----------------- -----------------
Net $4,245 $1,588
Valuation Allowance (4,245) -
----------------- -----------------
Net Asset $ 0 $1,588
----------------- -----------------
At February 26, 2000, the Company had approximately $17.7 million of state
operating loss carry-forwards, which are subject to review by the Internal
Revenue Service. The net operating loss carry-forwards begin to expire in
2003, and are subject to limitations on their use in any one year if there
should be a change in control of the Company. A valuation allowance has
been provided against the net deferred tax asset due to the uncertainty
regarding the realization of these assets.
(5) BANK CREDIT FACILITY
At February 26, 2000, the Company had approximately $97.9 million of
borrowings outstanding and approximately $.1 million of letters of credit
outstanding. The Company had approximately $2.1 million in available
borrowings under its credit facility at February 26, 2000. The bank has a
security interest in substantially all assets of the Company. Interest was
payable monthly. 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 February 26, 2000, the Company was not in
compliance with net worth and interest coverage financial covenants.
However, the Company has received a waiver of the compliance covenants
violations and amended future covenants.
Pursuant to an amendment with its bank dated as of June 9, 2000, the bank
amended the credit facility with respect to the financial covenants and
advance rates for future periods.
The commitment level and expiration date of the credit facility remained
unchanged at $100 million and December 31, 2001, respectively. The amended
covenants require the Company to maintain modified interest coverage and
fixed charge ratios quarterly through February 24, 2001 and for the year
ended February 24, 2001. The Company shall not exceed inventory levels of
$135 million as of August 26, 2000 and November 25, 2000 and $127.5 million
as of January 27, 2001. In addition, there will be no net new store
openings allowed and the Company will retain a financial advisor through
February 24, 2001.
The amended credit facility will bear interest at the bank's reference rate
plus 0.75% or LIBOR plus 2.25%. The credit facility allows for borrowing up
to $100 million based on a percentage of inventory (the "advance rate").
Borrowings include 50% of the amount reserved for outstanding letters of
credit.
The amended credit facility also gives the bank warrants for 200,000 shares
of the Company's class A common stock, exercisable at the lowest price
during the 60-day period starting June 9, 2000.
At February 27, 1999, the Company had approximately $80.2 million of
borrowings outstanding and approximately $0.4 million of letters of credit
outstanding. The Company had approximately $1.0 million in available
borrowings under this facility at February 27, 1999. At February 27, 1999,
the interest rates were 9.25% (bank's reference rate plus .75%) and 7.18%
(LIBOR plus 2.25%) and the Company was in compliance with all financial
covenants.
(6) STOCKHOLDERS' EQUITY
(a) Common Stock
The rights and privileges of the common stockholders are as follows:
Voting Rights
Holders of Class A common stock are entitled to one vote per share.
Holders of Class B common stock are entitled to 10 votes 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. Each share of Class B common stock is convertible to one
share of Class A common stock.
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.
(b) 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 has the right to establish any right and
preferences of any series of preferred stock it so designates. At
February 26, 2000 and February 27, 1999, there were no issued or
outstanding shares of preferred stock and the Board of Directors had
not established any rights or preferences.
(c) 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 four to seven years
or in such percentages as defined by the Board of Directors, and
terminates 10 years from the date of grant. A total of 2,275,000
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 vest three years after the date of grant and terminate 10
years from the date of grant.
Activity under the Option Plan and Director Plan is summarized as
follows:
<PAGE>
<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, March 1, 1997 1,134,458 1.84 - 4.88 40,000 4.00 - 4.88
Granted 158,550 5.75 - 7.06 3,000 7.00 - 7.06
Terminated (107,940) 1.84 - 9.58 - -
Exercised (70,680) 1.84 - 4.38 - -
--------- ------------- - -
Outstanding, February 28, 1998 1,114,388 $1.84 - $7.06 43,000 $4.00 - $7.06
Granted 233,950 $4.50 2,000 4.50
Terminated (122,483) 1.84 - 7.06 (10,500) 4.00
Exercised (14,890) 1.84 - 7.06 (12,500) 4.00 - 7.00
--------- ------------- -------- -------------
Outstanding, February 27, 1999 1,210,965 $1.84 - $7.06 22,000 $4.00 - $7.06
Granted 46,000 $1.43 - $2.00 - -
Terminated (182,525) $1.84 - $7.06 - -
Exercised (858) $1.84 - -
--------- -------------
Outstanding, February 26, 2000 1,073,582 $1.43 - $7.06 22,000 $4.00 - $7.06
========= ============= ======= =============
Exercisable, February 26, 2000 717,476 $1.84 - $7.06 18,000 $4.00 - $4.88
========= ============= ======= =============
</TABLE>
Set forth below is a summary of options outstanding and exercisable as of
February 26, 2000.
(Outstanding) (Exercisable)
Weighted Remaining Weighted
Range of Average Contract Average
Exercise Prices Options Exercise Price Life Options Exercise Price
--------------------------------------------------------------------------------
February 26, 2000
$1.43 - 2.00 381,543 $1.82 4.34 327,704 $ 1.84
4.00 - 4.88 645,439 4.38 5.62 398,947 4.36
5.75 - 7.06 68,600 6.67 7.27 8,825 6.32
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, Accounting for Stock Issued to Employees. 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
February 26, 2000, February 27,1999 and February 28,1998 using the
Black-Scholes option pricing model prescribed by SFAS No. 123.
The assumptions used and the weighted average information for the
fiscal years ended February 26, 2000, February 27, 1999, and February
28, 1998, are as follows:
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended
February 26, February 27, February 28,
2000 1999 1998
<S> <C> <C> <C>
Risk-free interest rate 6.7% 6.25% - 6.55% 6.25% - 6.55%
Expected dividend yield - - -
Expected lives 5 - 7.5 years 5 - 7.5 years 5 - 7.5 years
Expected volatility 85% 85% 85%
Weighted average grant-date fair value of options
granted during the period $ 1.64 $ 3.09 $ 4.74
Weighted average exercise price of options outstanding $ 3.63 $ 3.87 $ 3.88
Weighted average remaining contractual life of options
outstanding 5.32 years 6.32 years 6.81 years
Weighted average exercise price of 735,476, 531,636,
and 399,380 options exerciseable at February 26, 2000,
February 27, 1999, and February 27, 1998, respectively $ 3.20 $ 3.13 $ 3.07
The effect of applying SFAS No. 123 would be as follows
(in thousands except per share amounts):
Fiscal Years Ended
February 26, February 27, February 28,
2000 1999 1998
Pro forma net (loss) income ($7,725) ($7,729) $4,011
Pro forma basic net (loss) income per share ($0.73) ($0.73) $0.38
Pro forma diluted net (loss) income per share ($0.73) ($0.73) $0.36
</TABLE>
<PAGE>
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.
(d) 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
February 26, 2000, the Company had purchased 500,000 shares of Class A
common stock for approximately $2.5 million, of which 135,000 shares
were purchased at fair market value in 1997 from a member of the Board
of Directors at a cost of approximately $0.7 million.
(e) 1997 Employee Stock Purchase Plan
In October 1997, the Company's Board of Directors approved the 1997
Employee Stock Purchase Plan (the Purchase Plan) whereby, the Company
has reserved and may issue up to an aggregate of 250,000 shares of its
Class A common stock for issuance in accordance with the Purchase
Plan. Under the terms of the Purchase Plan, employees who meet certain
eligibility requirements may purchase shares of the Company's common
stock at the closing price of the common stock on the day immediately
preceding the purchase date or the nearest prior business day on which
trading occurred. There were 12,428 shares purchased under the
Purchase Plan during fiscal year 1999.
(7) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
February 26, 2000 February 27, 1999
Vendor receivables $15,609 $16,499
Credit card receivables 1,981 2,422
Other 998 2,104
Trade receivables 1,064 1,458
Allowance for doubtful accounts (278) (213)
----------------- -----------------
$19,374 $22,270
================= =================
(8) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following
(in thousands):
February 26, 2000 February 27, 1999
Other $2,424 $4,348
Refundable income tax 103 3,400
Prepaid catalog 1,074 1,670
Prepaid rent 63 90
----------------- -----------------
$3,664 $9,508
================= =================
(9) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
February 26, 2000 February 27, 1999
Land $ 186 $ 186
Building 672 672
Furniture and fixtures 13,007 12,702
Equipment 13,036 9,734
Equipment under capital lease 4,250 4,167
Leasehold improvements 6,934 6,740
----------------- -----------------
$38,085 $34,201
Less - Accumulated depreciation
and amortization 17,733 12,788
----------------- ------------------
$20,352 $21,413
================= =================
At February 26, 2000 and February 27, 1999, the accumulated depreciation
associated with equipment under capital lease was approximately $2.9
million and $2.1 million, respectively.
(10) TRANSACTIONS WITH RELATED PARTIES AND STOCKHOLDERS
The Company has a lease arrangement with Mystic United Realty Trust
(Mystic), for warehouse space at its Chelsea, Massachusetts, facility (the
Chelsea facility) under a non-cancelable lease through 2005. The chief
executive officer/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 cost related to the leased premises, which approximate $0.4
million annually (see Note 11).
During the fourth quarter of fiscal 1999, the Company's chief executive
officer/principal stockholder and his spouse, who is also a principal
stockholder of the Company, made interest-free, unsecured demand loans to
the Company in the aggregate amount of $3.0 million. All these loans
were repaid at February 26, 2000. The Company expects to obtain additional
unsecured demand loans from either or both of these lenders from time to
time which, if made, are expected to be repayable without interest.
(11) 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 4.83% to 8.70%, and expire at
various dates through January, 2002.
Future minimum lease payments under capital lease obligations at
February 26, 2000 are as follows (in thousands):
Fiscal Year Amount
2000 $ 577
2001 232
2002 -
-----
Total minimum lease payments 809
Less - Amounts representing interest 61
-----
Obligations under capital leases 748
Less - Current portion of capital lease obligations 530
-----
$ 218
=====
(b) Operating Leases
The Company leases retail stores, warehouse and office space, and
certain machinery and equipment under lease agreements expiring
through February 2015, including related party lease agreements (see
Note 10). Approximate future minimum lease payments under operating
leases as of February 26, 2000 are as follows:
Fiscal Year Total
(in thousands)
2000 $ 16,170
2001 13,734
2002 11,019
2003 7,294
2004 5,097
Thereafter 6,230
--------------
$ 59,544
==============
Rent and related expenses charged to operations during each of the
years ended February 26, 2000, February 27, 1999, and February 28,
1998 were approximately $19.1, $18.0, and $12.5, 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, litigation currently pending or
threatened will not have a material effect on the Company's financial
position or results of operations.
(12) 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 February 26, 2000, February 27, 1999, and February
28, 1998. The Company's contributions vest at a rate of 20% per year,
beginning after one year of employment. The Company has made matching
contributions of approximately $0.3 million to the plan for the fiscal
year ended February 26, 2000, and of approximately $0.2 million for each
of the fiscal years ended February 27, 1999, and February 28, 1998. The
Company pays the administrative costs of the Plan.
(13) SIGNIFICANT VENDOR
Purchases from the Company's largest single supplier were 8.8%, 10.8% and
9.0% of total purchases for the years ended February 26, 2000, February
27, 1999, and February 28, 1998, respectively.
(14) SELECTED INFORMATION BY BUSINESS SEGMENTS
The Company reports segment information according to SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
131 requires disclosures about operating segments in annual financial
statements and requires selected information about operating segments in
interim financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker, or
decision makers, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision maker is the chief
executive officer.
The Company sells its products through its Woodworkers Warehouse, Post
Tool and Golf Day retail stores and its Trend-lines and Golf Day catalogs.
These businesses have been aggregated into their respective reportable
segments based on the management reporting structure. The accounting
policies of the business segments are the same as those described in the
summary of significant accounting policies.
Information as to the operations of the different business segments is set
forth below for each of the years ended February 26, 2000, February 27,
1999, and February 28, 1998 (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended
February 26, 2000 February 27, 1999 February 28, 1998
<S> <C> <C> <C>
Net sales
Retail
Tools $156,903 $148,444 $133,000
Golf 77,125 68,587 38,612
Catalog
Tools 21,281 27,945 34,451
Golf 15,322 17,574 25,080
----------------- ----------------- -----------------
$270,631 $262,550 $231,143
================= ================= =================
Income (loss) from operations
Retail
Tools $10,476 $5,518 $9,094
Golf (400) (267) 2,260
Catalog
Tools 3,840 2,462 5,655
Golf 974 496 4,050
General corporate (13,705) (13,629) (10,527)
----------------- ----------------- -----------------
$1,185 ($5,420) $10,532
================= ================= =================
Identifiable assets
Retail
Tools $118,698 $98,560 $86,495
Golf 64,942 62,209 38,369
Catalog
Tools 10,994 12,431 13,556
Golf 7,329 8,062 9,372
General corporate 6,900 11,676 7,660
----------------- ----------------- -----------------
$208,863 $192,938 $155,452
================= ================= =================
Depreciation and amortization
Retail
Tools $2,408 $2,345 $1,543
Golf 1,931 1,854 853
Catalog
Tools 140 170 155
Golf 100 107 113
General corporate 717 262 172
----------------- ----------------- -----------------
$5,296 $4,738 $2,836
================= ================= =================
Capital expenditures
Retail
Tools $695 $2,564 $3,065
Golf 273 2,749 2,601
Catalog
Tools 39 161 536
Golf 28 101 390
General corporate 2,767 255 596
----------------- ----------------- -----------------
$3,802 $5,830 $7,188
================= ================= =================
</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 and are reflected as
general corporate expenses.
(15) QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following summarized unaudited results of operations for fiscal year
1999 and 1998 have been accounted for using generally accepted accounting
principles for interim reporting purposes and include adjustments
(consisting of normal recurring adjustments) that the Company considered
necessary for the fair presentation of results for the interim periods
shown below. (In thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Fiscal Year 1999
Net sales $70,981 $68,365 $57,616 $73,669
Gross Profit 22,140 20,869 18,996 21,235
Net (loss) income 170 487 89 (8,333)
Basic net (loss) income per share $0.02 $0.05 $0.01 ($0.79)
Diluted net (loss) income per share $0.02 $0.05 $0.01 ($0.79)
Basic weighted average common
shares outstanding 10,651 10,629 10,651 10,651
Diluted weighted average common
shares outstanding 10,720 10,695 10,651 10,651
Fiscal Year 1998
Net sales $59,639 $64,897 $60,102 $77,912
Gross Profit 17,581 20,007 18,367 25,018
Net (loss) income (4,603) (3,659) 59 793
Basic net (loss) income per share ($0.43) ($0.34) $0.01 $0.07
Diluted net (loss) income per share ($0.43) ($0.34) $0.01 $0.07
Basic weighted average common
shares outstanding 10,642 10,650 10,651 10,651
Diluted weighted average common
shares outstanding 10,642 10,650 10,723 10,781
</TABLE>
(16) SUBSEQUENT EVENT
On June 12, 2000, the Company announced that it is planning on divesting
itself of its golf businesses. The Company expects to treat the golf
business as a discontinued operation once the plans for divestiture are
definitive.
<TABLE>
<CAPTION>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance, Charged to Balance,
Beginning Costs and End
Of Period Expenses Deductions Of Period
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
February 28, 1998 $ 185 $ 89 $ 56 $ 218
======== ======== ======== ========
February 27, 1999 $ 218 $ - $ 5 $ 213
========= ======== ======== ========
February 26, 2000 $ 213 $ 77 $ 12 $ 278
========= ======== ======== ========
</TABLE>
