SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 27, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
TO _________________
Commission file number 0-24390
---------------
TREND - LINES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2722797
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 American Legion Highway, Revere, Massachusetts 02151
-------------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(781) 853 - 0900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS NUMBER OF SHARES OUTSTANDING JUNE 8, 2000
----- -----------------------------------------
Class A Common Stock, $.01 par value 6,010,411
Class B Common Stock, $.01 par value 4,641,082
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 27, 2000 (Unaudited) and February 26, 2000 3
Condensed Consolidated Statements of Operations
Three Months Ended May 27, 2000 and
May 29, 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended May 27, 2000 and
May 29, 1999 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 9-13
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
May 27, February 26,
2000 2000
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 365 $ 1,054
Accounts receivable, net 19,260 19,374
Inventories 133,074 157,028
Prepaid expenses and other current assets 4,830 3,664
--------- ---------
Total current assets 157,529 181,120
PROPERTY AND EQUIPMENT, NET 19,526 20,352
INTANGIBLE ASSETS, NET 4,978 6,316
OTHER ASSETS 1,001 1,075
--------- ---------
$ 183,034 $ 208,863
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank credit facility $ 88,342 $ 97,890
Current portion of capital lease obligations 421 530
Accounts payable 58,113 70,265
Accrued expenses 6,976 7,103
--------- ---------
Total current liabilities 153,852 175,788
--------- ---------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 139 218
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A --
Authorized - 20,000,000 shares
Issued - 6,510,411 and 6,510,411 shares
at May 27, 2000 and February 26, 2000,
respectively 65 65
Class B --
Authorized - 5,000,000 shares
Issued and outstanding - 4,641,082 and
4,641,082 shares at May 27, 2000 and
February 26, 2000, respectively 47 47
Additional paid-in capital 41,626 41,626
Retained deficit (10,235) (6,421)
Less:500,000 Class A shares held in treasury
at May 27, 2000 and February 26, 2000,
at cost (2,460) (2,460)
--------- ---------
Total stockholders' equity 29,043 32,857
--------- ---------
$ 183,034 $ 208,863
========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
THREE MONTHS ENDED
May 27, May 29,
2000 1999
------------ ------------
NET SALES $ 69,676 $ 70,981
COST OF SALES 49,965 48,841
------------ ------------
Gross Profit 19,711 22,140
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 21,393 20,273
------------ ------------
Income (loss) from operations (1,682) 1,867
INTEREST EXPENSE, NET 2,132 1,588
------------ ------------
Income (loss) before provision (benefit)
for income taxes (3,814) 279
PROVISION (BENEFIT) FOR INCOME TAXES -- 109
------------ ------------
Net income (loss) $ (3,814) $ 170
============ ============
BASIC NET INCOME (LOSS) PER SHARE $ (0.36) $ 0.02
============ ============
DILUTED NET INCOME (LOSS) PER SHARE $ (0.36) $ 0.02
============ ============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 2) 10,651,493 10,650,635
============ ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 2) 10,651,493 10,720,279
============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
THREE MONTHS ENDED
May 27, May 29,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,814) $ 170
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating
activities--
Depreciation and amortization 2,623 1,225
Changes in current assets and liabilities
Accounts receivable 114 (1,668)
Inventories 23,954 (3,676)
Prepaid expenses and other current assets (1,166) 3,595
Accounts payable (12,152) (4,225)
Accrued expenses (127) 644
-------- --------
Net cash provided by (used in) operating
activities 9,432 (3,935)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (373) (1,109)
(Decrease) increase in other assets (12) 69
-------- --------
Net cash (used in) investing activities (385) (1,040)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under bank credit
facilities (9,548) 5,150
Net payments on capital lease obligations (188) (174)
-------- --------
Net cash (used in) provided by financing
activities (9,736) 4,976
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (689) 1
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,054 540
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 365 $ 541
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 2,076 $ 1,571
======== ========
Income taxes $ 82 $ (3,574)
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
------------------------
The information set forth in these financial statements is unaudited and may be
subject to normal year end adjustments. In the opinion of management, the
information reflects all adjustments, which consist of normal recurring
accruals, that are considered necessary to present a fair statement of the
results of operations of Trend-Lines, Inc. (the "Company") for the interim
periods presented. The operating results for the three months ended May 27, 2000
are not necessarily indicative of the results to be expected for the fiscal year
ending February 24, 2001.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year February 26, 2000. Certain information in footnote disclosures
normally included in financial statements has been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
2. EARNINGS PER SHARE DATA
--------------------------
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 dilative effect of common stock equivalents such as stock
options and warrants. For the quarter ended May 27, 2000 the effect of dilutive
stock options were not included in the earnings per share calculation as their
effect would have been antidilutive . The total of 4,517 dilutive options were
excluded.
Below is a summary of the shares used in calculating basic and diluted earnings
per share:
THREE MONTHS ENDED
------------------
May 27, May 29,
2000 1999
---- ----
Weighted average number of shares of common
stock outstanding 10,651,493 10,650,635
Impact of dilutive stock options 0 69,644
---------- ----------
Diluted weight average shares outstanding 10,651,493 10,720,279
========== ==========
6
<PAGE>
3. BANK CREDIT FACILITY
-----------------------
At May 27, 2000, the Company had approximately $88.3 million of borrowings
outstanding and approximately $.7 million of letters of credit outstanding. The
Company had approximately $.3 million in available borrowings under its facility
at May 27, 2000. The bank has a security interest in substantially all assets of
the Company. At May 27, 2000, the interest rates were 10.5% (bank's reference
rate plus 0.5% ) and 8.19% (LIBOR + 2.00%).
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 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. At May 27, 2000, the Company was in
compliance with all financial covenants.
The amended credit facility will bear interest at the bank's reference rate plus
0.75% or LIBOR plus 2.25%. The amended 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.
7
<PAGE>
4. SELECTED INFORMATION BY BUSINESS SEGMENT
-------------------------------------------
Information as to the operations of the different business segments with respect
to sales and operating income is set forth below for quarters ended May 27, 2000
and May 29, 1999 (in thousands):
THREE MONTHS ENDED
------------------
May 27, May 29,
2000 1999
---- ----
Net Sales
Retail
Tools $ 39,440 $ 38,222
Golf 21,719 22,013
Catalog
Tools 4,693 5,918
Golf 3,824 4,828
-------- --------
$ 69,676 $ 70,981
======== ========
Income (loss) from operations
Retail
Tools $ 971 $ 3,023
Golf (860) 674
Catalog
Tools 529 1,153
Golf 264 237
General corporate expenses (2,586) (3,220)
-------- --------
$ (1,682) $ 1,867
======== ========
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 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.
8
<PAGE>
ITEM 2. 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
Golf Day.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.
Results of Operations
---------------------
Net sales for the first quarter of fiscal 2000 decreased by $ 1.3 million, or
1.8 %, from $ 71.0 million for the first quarter of fiscal 1999 to $ 69.7
million. Net retail sales for the first quarter of 2000 increased $ 1.0 million
or 1.7 % from $ 60.2 million for the first quarter of fiscal 1999 to $ 61.2
million. Net catalog sales for the first quarter of 2000 decreased $2.2 million
or 20.6% from $ 10.7 million for the first quarter of fiscal 1999 to $8.5
million. This is partially due to the Company's practice, which the Company
plans to continue, of not mailing catalogs to areas where it operates retail
stores. The revenue growth of retail stores is primarily attributable to store
sales growth at existing retail locations. Comparable store sales for
Woodworkers Warehouse, Post Tool and Golf Day stores for the first quarter of
fiscal 2000 increased by 1.7 % as compared to the first quarter of fiscal 1999.
The store base decreased 1.3 % from 227 locations at the end of the first
quarter of fiscal 1999 to 224 locations at the end of the first quarter of
fiscal 2000. Furthermore, in order to build retail customer traffic, the Company
expended additional advertising resources to stimulate sales growth.
9
<PAGE>
The following table presents net sales and gross margin data of the Company for
the quarters indicated:
Three Months Ended
------------------
May 27, May 29,
2000 1999
---- ----
(In thousands, except percentage data)
Net Sales:
Retail
Tools $39,440 $38,222
Golf 21,719 22,013
Catalog
Tools 4,693 5,918
Golf 3,824 4,828
------- -------
Total $69,676 $70,981
======= =======
Gross Margin 28.3% 31.2%
Following is a summary of retail stores operated:
Three Months Ended
------------------
May 27, May 29,
2000 1999
---- ----
Stores operated at the beginning of the quarter
Tools 148 149
Golf 82 82
--- ---
Total 230 231
Stores opened during the quarter
Tools 0 1
Golf 0 0
--- ---
Total 0 1
Stores closed during the quarter
Tools 3 2
Golf 3 3
--- ---
Total 6 5
Stores operated at the end of the quarter
Tools 145 148
Golf 79 79
--- ---
Total 224 227
=== ===
10
<PAGE>
Gross profit for the first quarter of fiscal 2000 decreased $2.4 million, or
10.9%, from $22.1 million for the first quarter of fiscal 1999 to $19.7 million
for the first quarter of fiscal 2000. As a percentage of net sales, gross profit
decreased 2.9 % from 31.2 % of net sales for the first quarter of fiscal 1999 to
28.3 % of net sales in the first quarter of fiscal 2000. The decrease in gross
profit was primarily due to more aggressive promotional programs.
Selling, general and administrative expenses for the first quarter of fiscal
2000 increased $1.1 million, or 5.4%, from $20.3 million for the first quarter
of fiscal 1999 to $21.4 million for the first quarter of fiscal 2000. As a
percentage of net sales, selling, general and administrative expenses increased
2.1% from 28.6 % of net sales in the first quarter of fiscal 1999 to 30.7% of
net sales in the first quarter of fiscal 2000. The increase in selling, general
and administrative expenses was primarily due to higher advertising costs and
accelerated amortization of good will related to the planned divestiture of the
golf businesses.
Interest expense for the first quarter of fiscal 2000, net of interest income,
increased by $0.5 million from $1.6 million in the first quarter of fiscal 1999
to $2.1 million in the first quarter of fiscal 2000. The increase in interest
expense was attributable to increased interest rates and the increase in the
amount outstanding under the Company's existing bank credit facility.
Liquidity and Capital Resources
-------------------------------
The Company believes that projected cash flows from operations in combination
with current available resources are sufficient to meet working capital needs,
such as store openings and debt payments. Achievement of projected cash flows
from operations, however will be dependent upon the Company's attainment of
sales, gross profit, expense and trade support levels that are consistent with
its financial plans. Such operating performance will be subject to financial,
economic and other factors affecting the industry and operations of the Company,
including factors beyond its control, and there can be no assurance that the
Company's plans will be achieved. 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 adverse impact on
results of operations or cash flow or further modification 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.
11
<PAGE>
During the first quarter of fiscal 2000, 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 $1.5 million. All of these loans were repaid
at May 27, 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's working capital decreased by $1.6 million, from $5.3 million as of
February 26, 2000 to $3.7 million as of May 27, 2000. The decrease resulted
primarily from a decrease in inventory of $24.0 million, which was offset by a
decrease in the net borrowings under the Company's bank credit facility of $9.5
million, and a decrease in accounts payable of $12.2 million.
During the first quarter of 2000, the cash provided by operating activities was
$9.4 million, primarily due to a decrease in inventories of $24.0 million and
depreciation and amortization of $2.6 million, offset by a decrease in accounts
payable of $12.2 million, a net loss of $3.8 million and an increase in prepaid
expenses and other current assets of $1.2 million.
The net cash used in investing activities was approximately $0.4 million. The
main use of the cash was for the purchase of property and equipment.
The net cash used in financing activities was approximately $9.7 million and was
primarily attributable to the decrease in borrowings on the Company's bank
credit facility of $9.5 million.
At May 27, 2000, the Company had approximately $88.3 million of borrowings
outstanding and approximately $.7 million of letters of credit outstanding. The
Company had approximately $.3 million in available borrowings under its facility
at May 27, 2000. The bank has a security interest in substantially all assets of
the Company. At May 27, 2000, the interest rates were 10.5% (bank's reference
rate plus 0.5%) and 8.19% (LIBOR + 2.00%).
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 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. At May 27, 2000, the Company was in
compliance with all financial covenants.
The amended credit facility will bear interest at the bank's reference rate plus
0.75% or LIBOR plus 2.25%. The amended 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.
12
<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; and (vii) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
13
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number
--------------
27 Financial Data Schedule (furnished to the Securities and Exchange
Commission for Electronic Data Gathering, Analysis and Retrieval [Edgar]
purposes only)
(b) Reports on Form 8-K - not applicable
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TREND-LINES, INC.
-----------------
Registrant
Date: July 14, 2000 /s/ Stanley D. Black
-----------------------------
Stanley D. Black
(Chief Executive Officer)
/s/ Ronald L. Franklin
-----------------------------
Ronald L. Franklin
(Executive Vice President,
Chief Financial Officer)
15
