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 31, 1997 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
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Commission file number 0-24390
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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 office) (Zip Code)
(617) 853 - 0900
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(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.
NUMBER OF SHARES OUTSTANDING
CLASS JULY 2, 1997
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Class A Common Stock, $.01 par value 5,817,568
Class B Common Stock, $.01 par value 4,750,026
TREND-LINES, INC. AND SUBSIDIARY
INDEX
Page
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 31, 1997 (Unaudited) and March 1, 1997 3
Condensed Consolidated Statements of Operations
Three Months Ended May 31, 1997 and June 1, 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended May 31, 1997 and June 1, 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
Part II - Other Information 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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 31, MARCH 1,
1997 1997
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Current Assets:
Cash and cash equivalents $ 337 $ 1,006
Accounts receivable, net 10,797 12,155
Inventories 83,886 85,909
Prepaid expenses and other current assets 5,709 6,462
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Total current assets 100,729 105,532
Property and Equipment, net 15,565 14,753
Other Assets 969 769
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$117,263 $121,054
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank credit facility $ 30,437 $ 25,196
Current portion of capital lease obligations 684 686
Accounts payable 34,551 43,900
Accrued expenses 6,089 5,690
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Total current liabilities 71,761 75,472
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Capital Lease Obligations, net of current portion 1,658 1,875
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Deferred Income Tax Liabilities 301 301
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Stockholders' Equity:
Common stock, $.01 par value-
Class A-
Issued--6,312,175 and 6,302,534 shares at May 31,
1997 and March 1, 1997, respectively 63 63
Class B-
Issued and outstanding--4,750,026 shares at May 31, 1997
and March 1, 1997 47 47
Additional paid-in capital 41,352 41,318
Retained earnings 4,541 4,128
Less: 500,000 and 440,000 Class A shares held in treasury
at May 31, 1997 and March 1, 1997, respectively
at cost (2,460) (2,150)
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Total stockholders' equity 43,543 43,406
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$117,263 $121,054
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See notes to condensed consolidated financial statements.
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TREND-LINES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Per share amounts)
(Unaudited)
--- THREE MONTHS ENDED ---
MAY 31, JUNE 1,
1997 1996
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NET SALES $57,089 $49,311
COST OF SALES 38,157 32,895
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Gross Profit 18,932 16,416
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 17,601 15,696
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Income from operations 1,331 720
INTEREST EXPENSE, net of interest income 654 410
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Income before provision for income taxes 677 310
PROVISION FOR INCOME TAXES 264 126
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Net income $413 $184
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NET INCOME PER COMMON SHARE $0.04 $0.02
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,038 11,297
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See notes to condensed consolidated financial statements
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TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
THREE MONTHS ENDED
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MAY 31, JUNE 1,
1997 1996
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Cash Flows from Operating Activities:
Net income $ 413 $ 184
Adjustments to reconcile net income
to net cash used in operating activities-
Depreciation and amortization 557 433
Loss on sale of property and equipment - 2
Changes in current assets and liabilities-
Accounts receivable 1,358 (1,206)
Refundable income taxes - 1,383
Inventories 2,023 (2,216)
Prepaid expenses and other current assets 753 (230)
Accounts payable (9,349) (6,034)
Accrued expenses 399 (154)
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Net cash used in operating activities (3,846) (7,838)
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Cash Flows from Investing Activities:
Purchases of property and equipment (1,378) (817)
Proceeds from sale of property and equipment 9
(Increase) decrease in other assets (200) (86)
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Net cash used in investing activities (1,569) (903)
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Cash Flows from Financing Activities:
Net borrowings under bank credit facilities 5,241 8,919
Payments on capital lease obligations (219) (125)
Proceeds from exercise of stock options 34 -
Purchases of treasury stock (310) -
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Net cash provided by financing activities 4,746 8,794
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Net Increase (Decrease) in Cash And
Cash Equivalents (669) 53
Cash and Cash Equivalents, Beginning of Period 1,006 436
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Cash and Cash Equivalents, End of Period $ 337 $ 489
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Supplemental Disclosure of Cash Flow Information:
Cash paid for-
Interest $ 600 $ 280
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Income taxes $ 863 $ 1
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See notes to condensed consolidated financial statements
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TREND-LINES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
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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 31, 1997 are
not necessarily indicative of the results to be expected for the fiscal year
ending February 28, 1998.
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 ended March 1, 1997. 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
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Net income per share for the three months ended May 31, 1997 and June 1, 1996 is
computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. Common
stock equivalents are calculated using the treasury stock method and consist of
common stock issuable upon the exercise of outstanding stock options.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for the fiscal
years ending after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ending February
28, 1998.
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Pro forma calculations of basic and diluted earnings per share as required by
SFAS No. 128 are as follows (in thousands, except per share data):
--- FISCAL PERIOD ENDED ---
MAY 31, JUNE 1,
1997 1996
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Basic EPS
Net income $ 413 $ 184
Weighted average common
shares outstanding 10,586 11,048
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Basic EPS $ .04 $ .02
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Diluted EPS
Net income $ 413 $ 184
Weighted average common and
common equivalent shares
outstanding 11,038 11,297
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Diluted EPS $ .04 $ .02
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3. BANK CREDIT FACILITY
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During fiscal 1996, the Company entered into a secured line of credit agreement
with a bank that expires on July 3, 1999. The facility bears interest at
the bank's reference rate plus .75% (9.0% at March 1, 1997) or LIBOR plus
2.25% (7.63% at March 1, 1997). If for any 12 month rolling period,
effective as of March 1, 1997, 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. Since
March 1, 1997 the Company has exceeded the fixed charges ratio. A
commitment fee of .375% per year of the average unused commitment amount,
as defined, is payable monthly. Effective June 16, 1997 the Company's
revolving credit facility line of credit was increased from $40 million to
$50 million (borrowings include amounts reserved for outstanding letters
of credit and a foreign exchange facility). Borrowings are based on a
formula related to inventory levels, as defined.
At May 31, 1997, the Company had approximately $30.4 million of borrowings
outstanding and approximately $1.1 million of letters of credit outstanding.
The Company had approximately $8.5 million in available borrowings under this
facility at May 31, 1997. The maximum and average outstanding loan balances
during fiscal 1997 under this facility were $31.4 million and
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$28.6 million,respectively. 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, interest coverage ratio's and limitations on
capital expenditures. The Company was in compliance with all bank covenants at
May 31, 1997.
4. RESTRUCTURING CHARGE
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In the fourth quarter of fiscal 1995, the Company recorded a restructuring
charge of approximately $1.4 million, representing the costs associated with
reorganizing its operations. These costs include a $954,000 charge for the rent
and related expenses for closing 12 retail store locations and the severance
and related benefits for terminated employees. Additionally, $443,000 was
charged for the consolidation of the Company's distribution centers.
As of May 31, 1997, the 12 retail store locations were closed, as anticipated
when the restructuring reserve was established. For the three months ended May
31, 1997 approximately $0.1 million was charged against the restructuring
reserve for store closing related activities and approximately $0.1 million
associated with the consolidation of the Company's distribution centers was also
charged against the restructuring reserve. As of May 31, 1997 and March 1, 1997,
approximately $0.1 million and $0.3 million, respectively of restructuring costs
are included in accrued expenses in the accompanying consolidated balance
sheets. There were no non-cash adjustments to the accrual during the three
months ended May 31,1997.
5. TREASURY STOCK
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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 May 31, 1997, the Company had purchased
500,000 shares of Class A common stock for approximately $2.5 million.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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Net sales for the first quarter of fiscal 1997 increased by $7.8 million, or
15.8%, from $49.3 million for the first quarter of fiscal 1996 to $57.1 million.
Net catalog sales for the first quarter of fiscal 1997 decreased $0.8 million or
4.2%, from $18.9 million for the first quarter of fiscal 1996 to $18.1 million
for the first quarter of fiscal 1997. Net retail sales for the first quarter of
1997 increased $8.6 million or 28.3% from $30.4 million for the first quarter of
fiscal 1996 to $39.0 million. The decrease in net catalog sales was primarily
attributable to both the reduced response rate to the Trend-Lines catalog and 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
7% from 147 locations at the end of the first quarter of fiscal 1996 to 158
locations at the end of the first quarter of fiscal 1997. Also, comparable net
store sales for Woodworkers Warehouse / Post Tool stores and Golf Day stores for
the first quarter of fiscal 1997 increased by 17.3% as compared to the first
quarter of fiscal 1996.
Gross profit for the first quarter of fiscal 1997 increased 15.3% from $16.4
million for the first quarter of fiscal 1996 to $18.9 million for the first
quarter of fiscal 1997. As a percentage of net sales, gross profit decreased
from 33.3% of net sales for the first quarter of fiscal 1996 to 33.2% of net
sales in the first quarter of fiscal 1997. The decrease in the Company's gross
profit percentage is primarily the result of the Company's changing sales mix,
which is caused by the increase in retail sales as a percentage of total sales
(retail store sales generally have lower overall gross margins than catalog
sales).
Selling, general and administrative expenses for the first quarter of fiscal
1997 increased 12.1%, or $1.9 million from $15.7 million for the first quarter
of fiscal 1996 to $17.6 million for the first quarter of fiscal 1997. As a
percentage of net sales, selling, general and administrative expenses decreased
from 31.8% of net sales in the first quarter of fiscal 1996 to 30.8% of net
sales in the first quarter of fiscal 1997. The decrease in selling, general
and administrative expenses as a percentage of net sales is primarily
attributable to the maturation of the store sales base (and associated
comparable store sales gains), as well as lower operating costs of retail
stores as compared to the catalog business. The dollar increases in selling,
general and administrative expenses are primarily related to the Company's
continuing retail expansion.
As the result of the above factors, income from operations for the first
quarter of fiscal 1997 increased by $.6 million, or 83.5%, from $0.7 million in
the first quarter of fiscal 1996 to $1.3 million in the first quarter of fiscal
1997. As a percentage of net sales, income from operations
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increased from 1.5% of net sales in the first quarter of fiscal 1996 to 2.3% of
net sales in the first quarter of fiscal 1997.
Interest expense, net of interest income, for the first quarter of fiscal 1997
increased by $244,000 from $410,000 in the first quarter of fiscal 1996 to
$654,000 in the first quarter of fiscal 1997. The increase in interest expense
is attributable to the increase in the Company's borrowings under its bank
credit facility.
Liquidity and Capital Resources
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The Company's working capital decreased by $1.1 million, from $30.1 million as
of March 1, 1997 to $29.0 million as of May 31, 1997. The decrease resulted
primarily from a $9.3 million decrease in accounts payable, which was only
partially offset by a $5.2 million increase in bank debt, primarily to support
the Company's expanding retail operations, a $2.0 million decrease in
inventories and a $1.4 million decrease in accounts receivable.
The Company anticipates that in fiscal 1997, 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 opened one store and closed two stores in the first
quarter.__For fiscal 1997, the Company currently plans to open approximately 40
to 50 retail stores.
Effective June 16, 1997 the Company's revolving credit facility line of credit
was increased from $40 million to $50 million. The Company believes that the
cash generated from operating activities, trade credit and available bank
borrowings will be sufficient to fund its operations and its retail store
expansion program for the next twelve months.
Impact of Inflation
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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
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1995
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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,
10
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) the adequacy of the Company's resources to fund
its planned operations and expansion will be adversely affected if it is not
able to renew or refinance its credit facility on a timely basis; (iii) the
Company's ability to open the planned number of stores will depend upon a number
of other factors, including securing desirable locations, negotiating leases
with acceptable terms, and hiring, training and retaining qualified personnel;
(i ii v) the Company's plans and results of operations will be affected by
the Company's ability to manage its growth and inventory; ( i v) the
Company's tool and golf businesses are highly competitive and the entrance of
new competitors into or the expansion of the operations by existing competitors
in the Company's and other changes in the tool or golf retail climate could
adversely markets affect the Company's plans and results of operations; and (vi)
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
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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 Reference
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10.1 Amendment No. 2, dated as of January 28, 1997 Filed
to the Loan and Credit Agreement dated herewith
July 3, 1996, among the Registrant,
Post Tool, Inc. as Borrowers and Bank
America Business Credit, Inc., as Lender.
10.2 Amendment No. 3, dated as of June 16, 1997, to the Filed
Loan and Credit Agreement dated July 3, 1996, among herewith
the Registrant, Post Tool, Inc., as Borrowers
and Bank America Business Credit, Inc., as Lender.
(b) Reports on Form 8-K - not applicable
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SIGNATURE
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
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Registrant
Date: July 8, 1997
___________________
Stanley D. Black
(Chief Executive Officer)
___________________
Karl P. Sniady
(Executive Vice President,
Chief Financial Officer)
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