SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 27, 1999
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 . . . .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
Identification No.) or organization)
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 JANUARY 5, 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
November 27, 1999 (Unaudited) and February 27, 1999 3
Condensed Consolidated Statements of Operations
Nine Months Ended November 27, 1999 and
November 28, 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended November 27, 1999 and
November 28, 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 9-14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
NOVEMBER 27, FEBRUARY 27,
1999 1999
(UNAUDITED)
------------ -----------
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 560 $ 540
ACCOUNTS RECEIVABLE, NET 25,038 22,270
INVENTORIES 147,705 131,219
PREPAID EXPENSES AND OTHER CURRENT ASSETS 6,161 9,508
------------ -----------
TOTAL CURRENT ASSETS 179,464 163,537
PROPERTY AND EQUIPMENT, NET 20,958 21,413
INTANGIBLE ASSETS, NET 6,358 6,621
OTHER ASSETS 1,174 1,367
------------ -----------
$ 207,954 $ 192,938
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
BANK CREDIT FACILITY $ 94,984 $ 80,152
CURRENT PORTION OF CAPITAL OBLIGATIONS 681 1,028
ACCOUNTS PAYABLE 64,275 62,589
ACCRUED EXPENSES 6,499 8,056
------------ -----------
TOTAL CURRENT LIABILITIES 166,439 151,825
------------ -----------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 327 671
------------ -----------
STOCKHOLDERS' EQUITY:
COMMON STOCK, $.01 PAR VALUE -
CLASS A --
AUTHORIZED-20,000,000 SHARES
ISSUED-6,510,411 AND 6,469,553 SHARES AT
NOVEMBER 27, 1999 AND FEBRUARY 27, 1999 65 64
CLASS B --
AUTHORIZED-5,000,000 SHARES
ISSUED AND OUTSTANDING-4,641,082 AND
4,681,082 SHARES AT NOVEMBER 27, 1999
AND FEBRUARY 27, 1999 46 47
ADDITIONAL PAID IN CAPITAL 41,626 41,625
RETAINED EARNINGS 1,911 1,166
LESS: 500,000 CLASS A SHARES HELD IN TREASURY AT
NOVEMBER 27, 1999 AND FEBRUARY 27, 1999,
AT COST (2,460) (2,460)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 41,188 40,442
------------ ------------
$ 207,954 $ 192,938
============ ===========
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 27, NOVEMBER 28, NOVEMBER 27, NOVEMBER 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 57,616 $ 60,102 $ 196,962 $ 184,638
COST OF SALES 38,620 41,735 134,957 128,683
------------ ------------ ------------ ------------
GROSS PROFIT 18,996 18,367 62,005 55,955
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 17,019 16,730 55,593 63,388
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 1,977 1,637 6,412 (7,433)
INTEREST EXPENSE, NET 1,831 1,578 5,189 3,999
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) BEFORE INCOME TAXES 146 59 1,223 (11,432)
PROVISION (BENEFIT) FOR INCOME TAXES 57 - 477 (3,230)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 89 $ 59 $ 746 (8,202)
============ ============ ============ ============
BASIC NET INCOME (LOSS) PER SHARE $ 0.01 $ 0.01 $ 0.07 (0.77)
============ ============ ============ ============
DILUTED NET INCOME (LOSS) PER SHARE $ 0.01 $ 0.01 $ 0.07 (0.77)
============ ============ ============ ============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 2) 10,651,493 10,650,635 10,643,555 10,647,610
============ ============ ============ ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 2) 10,651,493 10,723,142 10,691,560 10,647,610
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
NOVEMBER 27, NOVEMBER 28,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 746 $ (8,202)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES--
DEPRECIATION AND AMORTIZATION 4,156 3,503
CHANGES IN CURRENT ASSETS AND LIABILITIES
ACCOUNTS RECEIVABLE (2,768) (4,132)
INVENTORIES (16,486) (24,793)
PREPAID EXPENSES AND OTHER CURRENT ASSETS 3,347 (282)
ACCOUNTS PAYABLE 1,686 9,512
ACCRUED EXPENSES (1,560) (3,647)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (10,879) (28,041)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF PROPERTY AND EQUIPMENT (3,183) (5,658)
INCREASE (DECREASE) IN OTHER ASSETS (60) 40
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (3,243) (5,618)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWINGS UNDER BANK CREDIT FACILITIES 14,832 34,503
NET PAYMENTS ON CAPITAL LEASE OBLIGATIONS (690) (576)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS - 101
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,142 34,028
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 20 369
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 540 669
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 560 $ 1,038
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID (REFUNDED) FOR:
INTEREST $ 4,792 $ 3,599
============ ============
INCOME TAXES $ (3,228) $ 339
============ ============
See notes to condensed consolidated financial statements
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The information set forth in these financial statements is unaudited and may be
subject to normal year end adjustments. In the opinion of management, the
information reflects all adjustments, which consist of normal recurring
accruals, that are considered necessary to present a fair statement of the
results of operations of Trend-Lines, Inc. (the "Company") for the interim
periods presented. The operating results for the nine months ended November 27,
1999 are not necessarily indicative of the results to be expected for the fiscal
year ending February 26, 2000.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year February 27, 1999. Certain information in footnote disclosures
normally included in financial statements has been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
2. Earnings Per Share Data
In fiscal 1997, the Company adopted SFAS No. 128 Earnings Per Share, which
changed the method of calculating earnings per share. SFAS 128 requires the
presentation of "basic" earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing the net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. For the purposes of calculating diluted earnings per share, the
denominator includes both the weighted average number of common stock
outstanding and the dilutive effect of common stock equivalents such as stock
options and warrants.
Potentially dilutive securities include outstanding options under the Company's
stock option plan.
Below is a summary of the shares used in calculating basic and diluted earnings
per share:
<TABLE>
Three Months Ended Nine Months Ended
November 27, November 28, November 27, November 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of shares of
common stock outstanding 10,651,493 10,650,635 10,643,555 10,647,610
Dilutive stock options 0 72,507 48,005 0
---------- ---------- ---------- ----------
Shares used in calculating diluted
earnings per share 10,651,493 10,723,142 10,691,560 10,647,610
========== ========== ========== ==========
</TABLE>
3. Bank Credit Facility
During fiscal 1996, the Company entered into a secured line-of-credit agreement
with a bank (the "credit facility") that, as amended during fiscal 1998, expires
on December 31, 2001. The credit facility bears interest at the bank's reference
rate plus .50% (9.00% at November 27, 1999) or LIBOR plus 2.00% (7.4% at
November 27, 1999). If for any 12 month rolling period, the fixed charges ratio
exceeds certain limits, as defined, the bank's interest rate on the credit
facility is decreased by .25% for the period immediately following such rolling
period, which is reflected above. A commitment fee of .375% per year of the
average unused commitment amount, as defined, is payable monthly. The credit
facility allows for borrowing up to $100 million based on a percentage of
inventory (the "advance rate"). Borrowings include 50% of the amounts reserved
for outstanding letters of credit.
At November 27, 1999, the Company had approximately $95.0 million of borrowings
outstanding and approximately $0.5 million of letters of credit outstanding. The
Company had approximately $1.5 million in available borrowings under this
facility at November 27, 1999. The bank has a security interest in substantially
all assets of the Company. The bank credit facility agreement contains certain
financial covenants, including, but not limited to, maintaining minimum levels
of tangible net worth, and interest coverage ratios and limitations on capital
expenditures. At November 27, 1999, the Company was in compliance with all
financial covenants.
The borrowing base of the credit facility is to a maximum amount of $100
million. The advance rate is 65% through the last day of May, 1999, 70% from the
first day of June, 1999 through the last day of October, 1999, and 65%
thereafter. The Company is required to maintain an interest coverage ratio of
2.00:1.00, on a rolling 12 month basis for each quarter. The adjusted tangible
net worth as of the last day of the third fiscal quarter of 1999 is required to
be $41.0 million, and for the fourth fiscal quarter 1999 and each fiscal quarter
thereafter, adjusted tangible net worth is required to be $42.0 million. Capital
expenditures may not exceed $6.0 million for any fiscal year.
4. Selected Information By Business Segment
Information as to the operations of the different business segments with respect
to sales and operating income is set forth below for quarter ended and nine
months ended November 27, 1999 and November 28, 1998 (in thousands):
Three Months Ended Nine Months Ended
November 27, November 28, November 27, November 28,
1999 1998 1999 1998
---- ---- ---- ----
Net Sales
Retail
Tools $ 36,299 $ 37,873 $ 109,063 $ 100,059
Golf 13,743 12,490 61,804 52,106
Catalog
Tools 4,713 6,325 14,846 19,546
Golf 2,861 3,414 11,249 12,927
------------ ------------ ------------ ---------
$ 57,616 $ 60,102 $ 196,962 $ 184,638
------------ ------------ ------------ ---------
Income (Loss) From
Operations
Retail
Tools $ 3,515 $ 2,625 $ 8,875 $ 1,489
Golf 26 (401) 2,618 560
Catalog
Tools 1,097 1,164 3,397 884
Golf 484 653 997 279
General Corporate Expense (5,033) (3,982) (15,141) (11,415)
------------ ------------ ------------ ----------
$ 89 $ 59 $ 746 $ (8,203)
------------ ------------ ------------ ----------
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 allocated
between the business segments.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the third quarter of fiscal 1999 decreased by $2.5 million, or
4.2%, from $60.1 million for the third quarter of fiscal 1998 to $57.6 million.
Net retail sales for the third quarter of fiscal 1999 decreased $0.3 million or
0.6% from $50.3 million for the third quarter of fiscal 1998 to $50.0 million.
Catalog sales for the third quarter of fiscal 1999 decreased $2.2 million, or
21.6%, from $9.7 million for the third quarter of fiscal 1998 to $7.5 million.
The catalog sales were impacted by the Company's practice, which the Company
plans to continue, of not mailing catalogs to areas where it operates retail
stores. The revenue decrease of retail stores is primarily attributable to flat
comparable store sales growth and a decrease in net new store openings and
closed stores. Comparable store sales for Woodworkers Warehouse, Post Tool, and
Golf Day stores for the third quarter of fiscal 1999 increased by 1% as
compared to the third quarter of fiscal 1998. The store base decreased 1% from
230 locations at the end of the third quarter of fiscal 1998 to 228 locations at
the end of the third quarter of fiscal 1999.
Net sales for the first nine months ended of fiscal 1999 increased by $12.4
million, or 6.7%, from $184.6 million for the first nine months ended of fiscal
1998 to $197.0 million. Net retail sales for the first nine months of fiscal
1999 increased $18.7 million or 12.3% from $152.2 million for the first nine
months of fiscal 1998 to $170.9 million. Comparable store sales for Woodworkers
Warehouse, Post Tool, and Golf Day stores for the nine months ended of fiscal
1999 increased by 9.1% as compared to the nine months ended of fiscal 1998.
Catalog sales for the first nine months of fiscal 1999 decreased $6.4 million,
or 19.7%, from $32.5 million for the first nine months of fiscal 1998 to $26.1
million. This is partially due to the Company's practice, which the Company
plans to continue, of not mailing catalogs to areas where it operates retail
stores. The revenue growth of retail stores is primarily attributable to
increased store sales at existing retail locations.
The following table presents net sales and gross margin data of the Company for
the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 27, NOVEMBER 28, NOVEMBER 27, NOVEMBER 28,
1999 1998 1999 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET SALES:
RETAIL
TOOLS $ 36,299 $ 37,873 $ 109,063 $ 100,059
GOLF 13,743 12,490 61,804 52,106
CATALOG
TOOLS 4,713 6,325 14,846 19,546
GOLF 2,861 3,414 11,249 12,927
------------ ------------ ------------ -----------
TOTAL $ 57,616 $ 60,102 $ 196,962 $ 184,638
============ ============ ============ ===========
GROSS MARGIN
RETAIL
TOOLS 30.6% 26.6% 28.9% 25.6%
GOLF 30.8% 30.3% 29.5% 31.3%
CATALOG
TOOLS 44.9% 45.0% 45.7% 41.0%
GOLF 53.5% 48.0% 48.6% 47.0%
------------ ------------ ------------ -----------
33.0% 30.6% 31.5% 30.3%
============ ============ ============ ===========
Following is a summary of retail store growth:
THREE MONTHS ENDED
NOVEMBER 27, NOVEMBER 28,
1999 1998
---- ----
STORES OPERATED AT THE BEGINNING OF THE QUARTER
TOOLS 148 141
GOLF 78 76
--- ---
TOTAL 226 217
STORES OPENED
TOOLS 1 9
GOLF 2 8
--- ---
TOTAL 3 17
STORES CLOSED
TOOLS 1 2
GOLF 0 2
--- ---
TOTAL 1 4
STORES OPERATED AT THE END OF THE THIRD QUARTER
TOOLS 148 148
GOLF 80 82
--- ---
TOTAL 228 230
==== ===
Gross profit for the third quarter of fiscal 1999 increased $0.6 million, or
3.4%, from $18.4 million for the third quarter of fiscal 1998 to $19.0 million.
As a percentage of net sales, gross profit increased 2.4% from 30.6% of net
sales for the third quarter of fiscal 1998 to 33.0% of net sales in the third
quarter of fiscal 1999. Planned price increases in retail stores accounted for
the increase in gross margin. This increase took place in spite of decreased
catalog sales which have a higher gross margin.
Gross profit for the first nine months of fiscal 1999 increased $6.0 million, or
10.8%, from $56.0 million for the first nine months of fiscal 1998 to $62.0
million for the first nine months of fiscal 1999. As a percentage of net sales,
gross profit increased 1.2% from 30.3% of net sales for the first nine months of
fiscal 1998 to 31.5% of net sales in the first nine months of fiscal 1999. Gross
margin for the first nine months of fiscal 1999 was consistent with historical
performance parameters given the different levels of gross margin that are
inherent between the retail and catalog businesses and the planned price
increases in retail stores.
Selling, general and administrative expenses for the third quarter of fiscal
1999 increased $0.3 million, or 1.7%, from 27.8% for the third quarter of fiscal
1998 to 29.5% for the third quarter of fiscal 1999. The increase in selling,
general and administrative as a percentage of net sales is primarily
attributable to higher net retail advertising expenses in the third quarter of
fiscal 1999 compared to the third quarter of fiscal 1998.
Selling, general and administrative expenses for the first nine months of fiscal
1999 decreased $7.8 million, or 12.3%, from $63.4 million for the first nine
months of fiscal 1998 to $55.6 million for the first nine months of fiscal 1999.
The decrease in selling, general and administrative expenses is primarily
related to the elimination of the non-recurring expenses incurred last year as a
result of the problems encountered in the implementation of the then new
warehouse management system.
Interest expense for the third quarter of fiscal 1999, net of interest income,
increased by $0.3 million from $1.6 million in the third quarter of fiscal 1998
to $1.9 million in the third quarter of fiscal 1999. The increase in interest
expense is attributable to the increase in the amount outstanding under the
Company's existing bank credit facility.
Interest expense for the first nine months of fiscal 1999, net of interest
income, increased by $1.2 million from $4.0 million in the first nine months of
fiscal 1998 to $5.2 million in the first nine months of fiscal 1999. The
increase in interest expense is attributable to the increase in the amount
outstanding under the Company's existing bank credit facility.
For the foregoing reasons, net income for the third quarter of fiscal 1999 was
approximately $89,000, or $0.01 per share, compared to net income of
approximately $59,000, or $0.01 per share, in the comparable quarter ended
November 28, 1998. For the same reasons, net income for the nine months ended
November 27, 1999 was approximately $746,000, or $0.07 per share, compared with
a net after-tax loss of approximately $8.2 million, or ($0.77) per share, for
the nine months ended November 28, 1998.
Liquidity and Capital Resources
The Company believes that projected cash flows from operations in combination
with current available resources are sufficient to meet working capital needs,
such as store openings and debt payments. Achievement of projected cash flows
from operations, however, will be dependent upon the Company's attainment of
sales, gross profit, expense and trade support levels that are consistent with
its financial plans. Such operating performance will be subject to financial,
economic and other factors affecting the industry and operations of the Company,
including factors beyond its control, and there can be no assurance that the
Company's plans will be achieved. If projected cash flows from operations are
not realized, then the Company may have to explore various available
alternatives, including obtaining further modification to its existing lending
arrangements or attempting to locate additional sources of financing.
The Company's working capital increased by $1.3 million, from $11.7 million as
of February 27, 1999 to $13.0 million as of November 27, 1999. The increase
resulted primarily from an increase in inventory of $16.5 million and accounts
receivable of $2.8 million which was offset by an increase in the net borrowings
under the Company's bank credit facility of $14.8 million and a decrease in
prepaid expenses and other current assets of $3.3 million.
During the first nine months of fiscal 1999, the cash used in operating
activities was $11.0 million. The primary uses of the cash were an increase in
inventories for $16.5 million and accounts receivable for $2.8 million and a
decrease in accrued expenses of $1.6 million, which was offset by an increase in
accounts payable of $1.7 million, a decrease in prepaid expenses and other
current assets of $3.3 million and a decrease in accrued expenses for $1.6
million and depreciation and amortization of $4.2 million.
The net cash used in investing activities was approximately $3.2 million. The
main use of the cash was for the purchase of property and equipment.
The net cash provided by financing activities was approximately $14.1 million
and was primarily attributable to the increase in borrowings on the Company's
bank credit facility of $14.8 million.
During fiscal 1996, the Company entered into a secured line-of-credit agreement
with a bank (the "credit facility") that, as amended during fiscal 1998, expires
on December 31, 2001. The credit facility bears interest at the bank's reference
rate plus .50% (9.00% at November 27, 1999) or LIBOR plus 2.00% (7.4% at
November 27, 1999). If for any 12 month rolling period, the fixed charges ratio
exceeds certain limits, as defined, the bank's interest rate on the credit
facility is decreased by .25% for the period immediately following such rolling
period, which is reflected above A commitment fee of .375% per year of the
average unused commitment amount, as defined, is payable monthly. The credit
facility allows for borrowing up to $100 million based on a percentage of
inventory (the "advance rate"). Borrowings include 50% of the amounts reserved
for outstanding letters of credit.
At November 27, 1999, the Company had approximately $95.0 million of borrowings
outstanding and approximately $0.5 million of letters of credit outstanding. The
Company had approximately $1.5 million in available borrowings under this
facility at November 27, 1999. The bank has a security interest in substantially
all assets of the Company. The bank credit facility agreement contains certain
financial covenants, including, but not limited to, maintaining minimum levels
of tangible net worth, and interest coverage ratios and limitations on capital
expenditures. At November 27, 1999, the Company was in compliance with all
financial covenants.
The borrowing base of the credit facility is to a maximum amount of $100
million. The advance rate is 65% through the last day of May, 1999, 70% from the
first day of June, 1999 through the last day of October, 1999, and 65%
thereafter. The Company is required to maintain an interest coverage ratio of
2.00:1.00, on a rolling 12 month basis for each quarter. The adjusted tangible
net worth as of the last day of the third fiscal quarter of 1999 is required to
be $41.0 million, and for the fourth fiscal quarter 1999 and each fiscal quarter
thereafter, adjusted tangible net worth is required to be $42.0 million. Capital
expenditures may not exceed $6.0 million for any fiscal year.
The Company anticipates that it will operate approximately 230 stores by the end
of fiscal 1999. To the extent necessary, the Company will continue to invest in
leasehold improvements and equipment to support its retail store expansion
plans. In addition, the Company's limited expansion plans will require the use
of cash to fund increased inventories associated with the operation of
additional retail stores. The Company estimates that the cost of opening a new
store (exclusive of distribution center inventory) averages approximately
$350,000, of which $290,000 consists of inventory, in the case of a tool store,
and approximately $425,000, of which $300,000 consists of inventory, in the case
of a golf store. In each case, a portion of the inventory investment is financed
with trade credit. The Company opened one new tool store and two new golf stores
and closed one tool stores in the third quarter of fiscal 1999. For the first
nine months of fiscal 1999, the Company opened two new tool store and four new
golf store and closed three tool stores and six golf stores.
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 1, 2000,
either information technology systems or imbedded technology did not correctly
recognize date 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 properly interprets dates in the year 2000
and beyond. All software is under maintenance agreements by software companies
that have provided updated software that properly recognizes the post January 1,
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 successfully 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 could encounter future
problems in taking customer orders, shipping products, invoicing customers or
collecting payments. The amount of potential lost revenue or related
consequences as a result of these unlikely contingencies has not been estimated.
In addressing contingency issues, the Company plans to allocate internal
resources and may retain dedicated consultants and vendor representatives to be
available to take corrective action, if necessary. However, the Company will
adjust and adopt additional plans if situations arise requiring modifications to
existing contingency plans or new contingency plans, as required.
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 as well as year end
inventory and adjustments; (v) the Company's ability to achieve its plans and
strategies of growth will be dependent on maintaining adequate bank and other
financing: (vi) the timing and effectiveness of programs dealing with the Year
2000 issue; and (vii) other risks and uncertainties indicated from time to time
in the Company's filings with the Securities and Exchange Commission.
<PAGE>
TREND-LINES, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
27 Financial Data Schedule (furnished to the Securities and Exchange Commission
for Electronic Data Gathering, Analysis and Retrieval [Edgar] purposes only)
(b) Reports on Form 8-K - not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TREND-LINES, INC.
Registrant
Date: January 6, 2000 /s/ Stanley D. Black
Stanley D. Black
(Chief Executive Officer)
/s/ Ronald L. Franklin
Ronald L. Franklin
(Vice President
Finance and Treasurer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF FINANCIAL CONDITION AT
NOVEMBER 27, 1999 (UNAUDITED) AND THE RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED NOVEMBER 27, 1999 (UNAUDITED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> FEB-26-2000 FEB-27-1999
<PERIOD-START> FEB-28-1999 FEB-28-1998
<PERIOD-END> NOV-27-1999 FEB-27-1999
<CASH> 560 540
<SECURITIES> 0 0
<RECEIVABLES> 25,239 22,483
<ALLOWANCES> (201) (213)
<INVENTORY> 147,705 131,219
<CURRENT-ASSETS> 179,464 163,537
<PP&E> 37,384 34,201
<DEPRECIATION> (16,426) (12,788)
<TOTAL-ASSETS> 207,954 192,938
<CURRENT-LIABILITIES> 166,439 151,825
<BONDS> 0 0
0 0
0 0
<COMMON> 111 111
<OTHER-SE> 41,077 40,331
<TOTAL-LIABILITY-AND-EQUITY> 207,954 192,938
<SALES> 196,962 262,550
<TOTAL-REVENUES> 196,962 262,550
<CGS> 134,957 181,577
<TOTAL-COSTS> 134,957 181,577
<OTHER-EXPENSES> 55,593 86,393
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,189 5,580
<INCOME-PRETAX> 1,223 (11,000)
<INCOME-TAX> 477 (3,590)
<INCOME-CONTINUING> 746 (7,410)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 746 (7,410)
<EPS-BASIC> 0.07 (0.70)
<EPS-DILUTED> 0.07 (0.70)
</TABLE>
