-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OEksKR24mXvOBtOZcrC2cPB+FmUqiVkzCC7cNCebirmBaTZAzv4tOLwjgps6xdL6 9XTruBeRzjQ+EawAyLLl7A== 0001042645-98-000164.txt : 19980714 0001042645-98-000164.hdr.sgml : 19980714 ACCESSION NUMBER: 0001042645-98-000164 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980530 FILED AS OF DATE: 19980713 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TREND LINES INC CENTRAL INDEX KEY: 0000922978 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 042722797 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24390 FILM NUMBER: 98665255 BUSINESS ADDRESS: STREET 1: 135 AMERICAN LEGION HWY CITY: REVERE STATE: MA ZIP: 02151 BUSINESS PHONE: 7818930900 MAIL ADDRESS: STREET 1: 135 AMERICAN LEGION HWY CITY: REVERE STATE: MA ZIP: 02151 10-Q 1 TREND-LINES, INC. 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 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ------------------ TO ----------------- 0-24390 Commission file number . . . . . . . . . . . . . . . . . TREND - LINES, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Exact name of registrant as specified in its charter) Massachusetts 04-2722797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 135 American Legion Highway, Revere, Massachusetts 02151 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Address of principal executive office) (Zip Code) (617) 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 JULY 7, 1998 ----- ------------------------------------------ Class A Common Stock, $.01 par value 5,923,341 Class B Common Stock, $.01 par value 4,726,794 TREND-LINES, INC. AND SUBSIDIARY INDEX Page ---- Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets May 30, 1998 (Unaudited) and March 1, 1998 3 Condensed Consolidated Statements of Operations Three Months Ended May 30, 1998 and May 31, 1997 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows Three Months Ended May 30, 1998 and May 31,1997 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations 8-10 Part II - Other Information Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TREND-LINES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
(Unaudited) May 30, March 1, 1998 1998 ------------- ---------- CURRENT ASSETS: Cash and cash equivalents $ 658 $ 669 Accounts receivable, net 17,379 18,546 Inventories 109,465 102,172 Prepaid expenses and other current assets 6,914 6,906 --------- --------- Total current assets 134,416 128,293 PROPERTY AND EQUIPMENT, NET 20,554 19,387 INTANGIBLE ASSETS, NET 6,885 6,973 OTHER ASSETS 803 799 --------- --------- $ 162,658 $ 155,452 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Bank credit facility (Note 3) $ 57,771 $ 43,801 Current portion of capital lease obligations 809 777 Accounts payable 48,769 53,830 Accrued expenses 11,091 8,111 --------- --------- Total current liabilities 118,440 106,519 --------- --------- CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 970 1,182 --------- --------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value - Class A -- Authorized - 20,000,000 shares Issued - 6,422,991 and 6,385,178 shares at May 30, 1998 and March 1, 1998, respectively 64 64 Class B -- Authorized - 5,000,000 shares Issued and outstanding - 4,726,794 and 4,738,066 shares at May 30, 1998 and March 1, 1998, respectively 47 47 Additional paid-in capital 41,624 41,524 Retained earnings 3,973 8,576 Less: 500,000 Class A shares held in treasury at May 30, 1998 and March 1, 1998, at cost (2,460) (2,460) --------- --------- Total stockholders' equity 43,248 47,751 --------- --------- $ 162,658 $ 155,452 ========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 TREND-LINES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (Unaudited)
Three months ended May 30, May 31, 1998 1997 ------------ ------------ NET SALES $ 59,639 $ 57,089 COST OF SALES 42,058 38,157 ------------ ------------ Gross Profit 17,581 18,932 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,418 17,601 ------------ ------------ Income (loss) from operations (5,837) 1,331 INTEREST EXPENSE, NET 1,053 654 ------------ ------------ Income (loss) before provision (benefit) for income taxes (6,890) 677 PROVISION (BENEFIT) FOR INCOME TAXES (2,287) 264 ------------ ------------ Net income (loss) $ (4,603) $ 413 ============ ============ BASIC NET INCOME (LOSS) PER SHARE $ (0.43) $ 0.04 ============ ============ DILUTED NET INCOME (LOSS) PER SHARE $ (0.43) $ 0.04 ============ ============ BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 10,641,896 10,585,124 ============ ============ DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 10,641,896 11,193,040 ============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 TREND-LINES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Three months ended May 30, May 31, 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,603) $ 413 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization 1,014 557 Changes in current assets and liabilities Accounts receivable 1,167 1,358 Inventories (7,293) 2,023 Prepaid expenses and other current assets (8) 753 Accounts payable (5,061) (9,349) Accrued expenses 2,980 399 -------- -------- Net cash (used in) operating activities (11,804) (3,846) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,093) (1,378) Proceeds from sale of property and equipment -- 9 Increase in other assets (4) (200) -------- -------- Net cash (used in) investing activities (2,097) (1,569) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under bank credit facilities 13,970 5,241 Payments on capital lease obligations (180) (219) Proceeds from exercise of stock options 100 34 Purchases of treasury stock -- (310) -------- -------- Net cash provided by financing activities 13,890 4,746 -------- -------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (11) (669) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 669 1,006 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 658 $ 337 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for - Interest $ 1,021 $ 600 ======== ======== Income taxes $ 1,550 $ 863 ======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 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 30, 1998 are not necessarily indicative of the results to be expected for the fiscal year ending February 27, 1999. 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 year February 28, 1998. Certain information in footnote disclosures normally included in financial statements have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. 2. EARNINGS PER SHARE DATA - -------------------------- 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 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 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 128. Potentially dilutive securities include outstanding options under the Company's stock option plan. For the quarter ended, May 30, 1998, the diluted earnings per share calculation has been computed using the basic weighted average shares outstanding, as the potentially dilutive securities are anti-dilutive. The number of potentially dilutive shares excluded from the earnings per share calculation was 538,047. Below is a summary of the shares used in calculating basic and dilutived earnings per share: May 30, May 31, 1998 1997 Weighted average number of shares of common stock outstanding 10,641,896 10,585,124 Dilutive effect of stock options 0 607,916 ---------- ---------- Shares used in calculating diluted earnings per share 10,641,896 11,193,040 ---------- ---------- 6 3. BANK CREDIT FACILITY - ----------------------- During fiscal 1996, the Company entered into a secured line-of-credit agreement with a bank that, as amended during fiscal 1997, expires on December 31, 2000. The facility bears interest at the bank's reference rate plus .75% (9.0% at May 30, 1998) or LIBOR plus 2.25% (7.625% at May 30, 1998). If for any 12 month rolling period the fixed charges ratio exceeds certain limits, as defined, the bank's interest rate on the facility is decreased by .25% for the period immediately following such rolling period. A commitment fee of .375% per year of the average unused commitment amount, as defined, is payable monthly. The Company's revolving credit facility allows for borrowing up to $80 million based on a borrowing formula related to inventory levels, as defined (borrowings include 50% of the amounts reserved for outstanding letters of credit.) At May 30, 1998, the Company had approximately $57.8 million of borrowings outstanding and approximately $0.3 million of letters of credit outstanding. The Company had approximately $3.1 million in available borrowings under this facility at May 30, 1998. The bank has a security interest in substantially all assets of the Company. The bank credit facility agreement contains certain restrictive covenants, including, but not limited to, maintenance of certain levels of tangible net worth, maintaining stipulated interest coverage ratios and limitations on capital expenditures. The Company was in compliance with all bank covenants at May 30, 1998. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Net sales for the first quarter of fiscal 1998 increased by $2.5 million, or 4.4%, from $57.1 million for the first quarter of fiscal 1997 to $59.6 million. Net catalog sales for the first quarter of fiscal 1998 decreased $7.4 million or 40.9%, from $18.1 million for the first quarter of fiscal 1997 to $10.7 million for the first quarter of fiscal 1998. Net retail sales for the first quarter of 1998 increased $10.0 million or 25.6% from $39.0 million for the first quarter of fiscal 1997 to $49.0 million. The decrease in net catalog sales was attributed to the Company's difficulties to ship merchandise on a timely basis to its catalog customers as a result of problems encountered during the implementation of a new warehouse management system. The decrease in net catalog sales is also attributed to the Company's opening of retail stores in areas previously only served by its catalog. The revenue growth of retail stores is attributable to the maturation and expansion of the Company's retail store base. The store base expanded over 34% from 158 locations at the end of the first quarter of fiscal 1997 to 213 locations at the end of the first quarter of fiscal 1998. However, comparable net store sales for Woodworkers Warehouse / Post Tool stores and Golf Day stores for the first quarter of fiscal 1998 decreased by 1.4% as compared to the first quarter of fiscal 1997. The decrease in comparable store sales is attributed to difficulties with the implementation of the new warehouse management system, which also disrupted the flow of merchandise to Woodworkers Warehouse and Golf Day stores. Gross profit for the first quarter of fiscal 1998 decreased $1.3 million, or 6.9%, from $18.9 million for the first quarter of fiscal 1997 to $17.6 million for the first quarter of fiscal 1998. As a percentage of net sales, gross profit decreased from 33.2% of net sales for the first quarter of fiscal 1997 to 29.5% of net sales in the first quarter of fiscal 1998. The decrease in the Company's gross profit percentage is the result of the Company's changing sales mix. The sales mix change was exacerbated by a particularly sharp 40.9% decline in catalog sales combined with a 25.6% increase in retail store sales as compared to last year's sales. Selling, general and administrative expenses for the first quarter of fiscal 1998 increased $5.8 million, or 33.0%, from $17.6 million for the first quarter of fiscal 1997 to $23.4 million for the first quarter of fiscal 1998. As a percentage of net sales, selling, general and administrative expenses increased from 30.8% of net sales in the first quarter of fiscal 1997 to 39.3% of net sales in the first quarter of fiscal 1998. The higher than normal increase in selling, general and administrative expenses as a percentage of net sales is primarily attributable to the unanticipated decrease in catalog and retail comparable sales, while operating infrastructure was positioned to achieve higher levels of sales. Also, the retail store base expanded over 34% to 213 locations, while negative comparable store sales reversed potential productivity improvements. The dollar increases in selling, general and administrative expenses are primarily related to the Company's continuing retail expansion. However, the Company also experienced significant, increased operating expenses due to problems encountered in the implementation of its warehouse management systems. Interest expense, net of interest income, for the first quarter of fiscal 1998 increased by $399,000 from $654,000 in the first quarter of fiscal 1997 to $1.1 million in the first quarter of fiscal 1998. The increase in interest expense is attributable to the increase in the Company's bank credit facility and a 25 basis point increase in its effective interest rate as a result of fixed charges ratio falling below a 1:1 level. 8 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Management believes that projected cash flows from operations in combination with current and projected available resources are more than sufficient to meet the working capital needs, such as store openings, and debt payments, of the Company. The Company's working capital decreased by $5.8 million, from $21.8 million as of March 1, 1998 to $16.0 million as of May 30, 1998. The decrease resulted primarily from a $5.1 million decrease in accounts payable and $3.0 increase in accrued expenses, which was only partially offset by a $14.0 million increase in bank debt, primarily to support the Company's expanding retail operations, a $7.3 million increase in inventories and a $1.2 million decrease in accounts receivable. The cash used in operating activities was approximately $11.8 million. The primary use of the cash was the $6.1 million net increase in inventories and accounts receivable, as well as the $5.1 million decrease in accounts payable. The net cash used in investing activities was approximately $2.1 million. The main use of the cash was for the purchase of property and equipment required for the Company's retail expansion. The net cash provided by investing activities was approximately $13.9 million, primarily attributable to the increase in borrowings on the Company's bank credit facility. The Company has used its revolving, secured bank credit facility over the last several years primarily to finance its operations and retail expansion. The maximum amount available under the credit facility is $80 million, as amended during fiscal 1997 and which expires on December 31, 2000, of which $57.8 million (including letters of credit totaling approximately $0.3 million) was outstanding as of May 30, 1998. The Company is permitted to borrow against its bank credit facility based on a borrowing formula related to inventory levels. The Company had approximately $3.1 million in available borrowings under this facility at May 30, 1998. Under the terms of the agreement, the facility contains financial covenants and bears interest at the bank's reference rate plus .75% (9.0% at May 30, 1998) or LIBOR plus 2.25% (7.625% at May 30, 1998). If for any 12 month rolling period the fixed charges ratio exceeds certain levels, as defined, the bank's interest rate on the facility is decreased by .25% for the period immediately following such rolling period. In addition, the agreement provides that the Company will pay a commitment fee of .375% per year of the average unused committed amount. The Company anticipates that in fiscal 1998, it will continue to invest in leasehold improvements and equipment to support its retail store expansion plans. In addition, the Company's expansion plans will require the use of cash to fund increased inventories associated with the operation of additional retail stores. The Company estimates that the cost of opening a new store (exclusive of distribution center inventory) averages approximately $350,000, including $290,000 of inventory, in the case of tool store, and approximately $425,000, including $300,000 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 eight new tool stores and five new golf stores, and closed three tool stores and began the process of relocating two tool stores. For fiscal 1998, the Company currently plans to open approximately 45 to 55 retail stores. Like many other companies, the Year 2000 computer issue creates risk for the Company. If internal systems do not correctly recognize date information when the year changes to 2000, it could have an adverse impact on the Company's operations. The Company is currently updating its software to accommodate programming logic that properly interprets Year 2000 dates. Except for 9 merchandising and call center applications, all software is under maintenance agreements by software companies that provide updated, Year 2000 compliant software. The Company is in the process of replacing its call center and merchandising software with new, industry-leading year 2000 compliant applications to be supplied by outside vendors at a cost estimated at approximately $2.0 million. Based on the Company's work-to-date and assuming that the Company's call center and merchandising software replacement projects can be implemented as planned, the Company believes 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. 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 timing and effectiveness of programs dealing with the Year 2000 issue and the Company's warehouse management system; and (vi) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. 10 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 - not applicable (b) Reports on Form 8-K - not applicable 11 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 13, 1998 /s/ Stanley D. Black --------------------------- Stanley D. Black (Chief Executive Officer) /s/ Karl P. Sniady --------------------------- Karl P. Sniady (Executive Vice President, Chief Financial Officer) 12 EX-27 2 ART. 5 FDS 1ST QUARTER 10-Q
5 1,000 3-MOS FEB-28-1998 MAR-1-1998 MAY-30-1998 658 0 17,162 217 109,465 134,416 29,881 9,327 162,658 118,440 970 0 0 111 43,137 162,658 59,639 59,639 42,058 42,058 23,418 0 1,053 (6,890) (2,287) 0 0 0 0 (4,603) (0.43) (0.43)
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