SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee required)
For fiscal year ended February 28, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (no fee required)
For the transition period from __________ to ____________.
Commission File Number: 0-24390
_______________Trend-Lines, Inc.______________
(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
(Zip Code)
(Address of Principal Executive Offices)
(781) 853-0900
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers
pursuant to Rule 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ X ]
The aggregate market value of the registrant's Class A Common
Stock, $.01 par value, held by non-affiliates of the registrant
as of April 30, 1998 was $81,035,023 based on the closing price
of $7.625 on that date on the Nasdaq National Market. As of
April 30, 1998, 5,889,478 shares of the registrant's Class A
Common Stock, $.01 par value, were outstanding, and 4,738,066
shares of the registrant's Class B Common Stock, $.01 par value,
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the
election of directors, which is expected to be filed within 120
days after the end of the registrant's fiscal year, are
incorporated by reference in Part III of this Report.
PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the
discussion in this Report and any document incorporated herein by
reference contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the
Company's plans, strategies, objectives, expectations and
intentions. The cautionary statements made in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995" should be read as being applicable
to all forward-looking statements wherever they appear. The
Company's actual results could differ materially from those
discussed or incorporated herein. Factors that could cause or
contribute to such differences include those discussed in
Management's Discussion and Analysis of Financial Condition and
Results of Operations as well as those discussed elsewhere herein
or the documents incorporated herein by reference.
The Company
Trend-Lines, Inc. (the "Company") is a specialty retailer of
power and hand tools and accessories, as well as golf equipment
and supplies. The Company was formed in 1981, and in 1983 the
Company began mailing its Trend-Lines catalog and opened a
Woodworkers Warehouse outlet store in its distribution center.
The Company opened its first Woodworkers Warehouse retail store
in 1986 and as of February 28, 1998, operated 109 Woodworkers
Warehouse stores. In January 1995, the Company further expanded
its tool retail operations by acquiring 17 Post Tool stores and a
distribution center for those stores and as of February 28, 1998,
operated 24 Post Tool stores. The Company purchased the Golf Day
name and mailing list in 1989, mailed its first Golf Day catalog
in 1990, opened a Golf Day outlet store in its distribution
center in January 1991 and, as of February 28, 1998, operated 71
Golf Day stores. All of the Company's Woodworkers Warehouse and
Golf Day retail stores are located in the Northeast and Mid-
Atlantic regions, except for 3 Golf Day stores located in
California. The Company's 24 Post Tool stores are located in
California except for one store located in Nevada.
Effective January 1, 1998, the Company acquired 13 Nevada Bob's
franchised stores located in the New England area from a private
investment partnership. Total sales of the 13 stores during 1996
were approximately $20 million. All of these stores were
immediately converted to Golf Day stores and are included in the
71 Golf Day stores operated by the Company as of February 28,
1998.
The Company was incorporated in Massachusetts in 1981. The
principal executive offices of the Company are located at 135
American Legion Highway, Revere, Massachusetts 02151, and its
telephone number is (781) 853-0900. As used herein, the term
Company refers to Trend-Lines, Inc. and its wholly owned
subsidiary, Post Tool, Inc.
The Woodworking Tool Industry
According to the "Woodworking in America"(Trademark) survey
sponsored in 1995 by the American Woodworker Magazine (the
"Woodworking Survey"), approximately 10% of the United States
adult population, or nearly 18.6 million people, are involved in
woodworking activities, spending more than $6.3 billion annually
on equipment and accessories used specifically for woodworking
projects. Major items in this category include power tools; wood
finishes; hand tools; blades, bits and cutters; glue and
adhesives; abrasives; sharpening equipment; books and other
equipment and supplies. Approximately 40% of the total amount
spent, or $2.6 billion, is spent on power tools.
Woodworkers range from home workshop enthusiasts to
professionals involved in a wide variety of activities, including
home construction and remodeling, cabinet and furniture making
and other woodworking projects. More advanced woodworkers
participate in activities that require a greater skill level,
such as cabinet making, architectural woodworking, furniture
making, millwork and veneering. According to the Woodworking
Survey, woodworkers have been involved in woodworking an average
of approximately fifteen years, and the typical woodworker spends
an average of more than six hours per week in the workshop.
Further, as interest and/or skill level increase, factors such as
a wide variety and selection of merchandise and availability of
hard-to-find items and well-known brand name products become more
important to the woodworking customer.
The Golf Industry
Over 26 million Americans played 550 million rounds of golf in
1997. This was a 7% increase in the number of golfers that
participated in the sport and a 14.6% increase in the number of
rounds played, according to the National Golf Foundation's 1997
report on golf participation in the United States. A strong
economy, hundreds of new courses and Tiger Woods are among the
factors that combined to make 1997 an excellent year for golf
participation. Major items in this category include clubs, bags,
hand carts, balls, training aids, golf shoes, apparel,
accessories and gift items.
Business Strategy
The Company's business strategy is designed to maximize the
Company's future growth by building upon the Company's position
as a leading specialty retailer. The Company utilizes the same
business strategy in two niche markets: power and hand tools and
accessories, as well as golf equipment and accessories. The key
elements of the Company's business strategy are as follows:
-- Expansion of retail store operations. The Company plans to
continue to expand its retail store operations by opening
approximately 45 to 55 stores in fiscal 1998. The Company
intends to continue to focus its retail store openings in
existing markets or markets in close proximity to those in
which it is currently operating in order to take advantage
of its distribution system. The Company may also consider
expansion of its retail store operations through strategic
acquisitions.
-- Complementary store and catalog operations. The strong name
recognition of the Company's Trend-Lines and Golf Day
catalogs, combined with the customer base and market
knowledge that have resulted from its catalog operations, is
facilitating the expansion of the Company's retail stores.
Management uses catalog information, among other things, in
identifying new store markets and determining the
appropriate product mix for its retail stores.
-- Cost-effective operations. The Company consistently strives
to lower the cost of its operations. In operating its tool
and golf businesses in the Northeast and Mid-Atlantic
regions, the Company uses a single facility with common
management and common or parallel information, telemarketing
and distribution systems, in order to achieve operational
efficiencies. The Company supports its Post Tool stores
through a distribution center located in Hayward,
California. Its Post Tool and Golf Day West operations have
been integrated into the Company's management information
systems.
-- Breadth and depth of product selection. The Company offers
breadth and depth of product selection, including many hard-
to-find items, and high quality brand name and private label
merchandise.
-- Low prices and matching product/price guarantee. The
Company's competitive pricing strategy features everyday low
prices combined with special sales and promotions, and a
matching product/price guarantee on any identical product
sold by a competitor.
-- Expert customer service. The Company provides its customers
with expert customer service through experienced, trained
personnel who have extensive knowledge about the products
sold by the Company.
-- Customer convenience. The Company strives to maximize
convenience to its customers by providing ample parking and
fast in-and-out service.
Expansion Strategy
As of February 28, 1998, the Company operated 109 Woodworkers
Warehouse stores in the Northeast and Mid-Atlantic regions; 71
Golf Day stores in the Northeast and Mid-Atlantic regions as well
as California; and 23 Post Tool stores in California and 1 in
Nevada. In fiscal 1997, the Company opened 18 Woodworkers
Warehouse and Post Tool stores and 33 Golf Day stores which
includes the acquisition of the 13 Nevada Bob's franchised stores
which were converted to Golf Day stores (see "The Company" and
Note 3 to the Consolidated Financial Statements), while closing 4
Woodworkers Warehouse stores and 2 Golf Day stores. The Company
plans to open approximately 45 to 55 retail stores in fiscal
1998.
The Company intends to continue to focus store openings in
existing markets or markets in close proximity to those in which
it is currently operating in order to take advantage of its
distribution system, as well as the strong name recognition,
customer base and market knowledge that have resulted from the
Company's catalog operations. When appropriate, the Company may
also seek to open new Woodworkers Warehouse and Golf Day stores
side-by-side or in the same strip mall. The Company may also
consider expansion of its retail store operations through
strategic acquisitions.
When deciding whether to enter a new market or open additional
stores in existing markets, the Company evaluates a number of
criteria, including size and growth pattern of the population,
local demographics, sales volume potential, competition, the
potential effect of a new store on existing stores in the same
area, real estate occupancy expense, traffic patterns and overall
level of retail activity. Stores typically are located in high-
traffic areas with adequate parking to support their sales
volume.
The cost of opening a new store (exclusive of distribution
center inventory), including fixtures, equipment and nominal
preopening expenses, averages approximately $350,000, including
$290,000 of inventory, in the case of a 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.
Products and Merchandising
The Company offers its woodworking customers breadth and depth
of product selection, including many hard-to-find items, high
quality brand name and private label merchandise, everyday low
pricing and a matching product/price guarantee, expert customer
service and convenience, all of which have enabled the Company to
compete successfully against major home centers, mass
merchandisers and hardware stores. The Company's Woodworkers
Warehouse stores have been successful even when located near home
centers such as Home Depot, Lowes and Home Quarters.
The Company's hand and power tool stores and Trend-Lines
catalog carry a broad selection of brand name products, including
products from Black & Decker, Bosch, Delta, DeVilbiss, DeWalt,
Emglo, Freud, Hitachi, Makita, Milwaukee, Porter-Cable, Ryobi,
Skil and Stanley Bostitch. In addition, the Company sells
private label products under its Reliant, Carb-Tech and Vulcan
trademarks. Most brand name and private label products are
generally sold with a one year limited manufacturer's parts and
labor warranty.
Woodworkers Warehouse stores primarily carry woodworking power
and hand tools and accessories. In addition, Post Tool stores
also carry power and hand tools and accessories for mechanical
(including automotive) work. The Company selects products based
on quality, value, durability, historic product demand, safety
and customer appeal. The Company constantly monitors its
customers' product preferences through inventory and sales data
provided by the Company's computer system, as well as its catalog
operations.
Woodworkers Warehouse stores and the Trend-Lines catalog serve
a wide range of woodworking tool customers, from home workshop
enthusiasts to professionals, involved in a wide variety of
activities, including home construction and remodeling, cabinet
and furniture making and other woodworking projects. The
Company's Woodworkers Warehouse and Trend-Lines customers are
generally experienced in woodworking and carpentry and desire
high quality brand name tools. Post Tool customers buy tools for
woodworking, carpentry, remodeling and general mechanical work,
including automotive. Woodworkers Warehouse and Post Tool stores
also attract professionals who are buying tools for use in their
trade. The Company's stores offer professional tools,
knowledgeable sales people and fast in-and-out service. The
Company's Woodworkers Warehouse stores also offer tool repair,
which is done by an outside service company.
The Company's Golf Day retail stores and mail order catalog
sell a broad selection of golf equipment and supplies, including
clubs, club components, bags, balls, golf shoes, apparel, hand
carts, training aids, accessories and gift items. The Company
carries leading brand name golf products, including products from
Aldila, Callaway, Cleveland, Cobra, Etonic, Foot-Joy, Hogan,
MacGregor, Mizuno, Nike, Spalding, Taylor Made, Titleist, Tommy
Armour and Wilson. In addition, the Company sells private label
golf merchandise under its Honors trademark. The Company selects
golf products using similar criteria as are applied in the
selection of tools and accessories.
Retail Operations
The Company designs its retail stores to be destination stores
and strives to maximize convenience to its customers by providing
ample parking and fast in-and-out service. The Company's stores
are generally located either in strip malls or in free-standing
buildings.
The Company's tool stores generally range from 4,500 to 5,500
square feet of retail space and carry approximately 5,000 stock
keeping units (SKUs). The Company's golf stores generally range
from 4,000 to 5,000 square feet of retail space and carry
approximately 3,500 SKUs. Generally, the Company's stores are
open seven days and two nights per week, except for certain
holidays.
As of February 28, 1998, the Company operated 109 Woodworkers
Warehouse stores, 24 Post Tool stores and 71 Golf Day stores. Of
the Woodworkers Warehouse stores, 30 were located in New York, 19
in Massachusetts, 15 in Pennsylvania, 11 in New Jersey, 10 in New
Hampshire, 10 in Connecticut, 7 in Maine, 3 in Rhode Island, 2 in
Delaware and 2 in Vermont. Of the Post Tool stores, 23 are
located in California and 1 in Nevada. Of the Golf Day stores,
21 are located in Massachusetts, 13 in New Jersey, 10 in New
York, 7 in Connecticut, 5 in New Hampshire, 5 in Maine, 4 in
Pennsylvania, 3 in California, 2 in Delaware, and 1 in Rhode
Island.
The Company's retail store operations are currently divided
into regional districts, with each district containing from 18 to
30 stores. The Company evaluates the performance of its stores on
a continuous basis and will close any store which is not
adequately contributing to the profitability of the Company.
During fiscal 1997, the Company closed 4 Woodworkers Warehouse
stores and 2 Golf Day stores.
The Company trains its employees to explain and demonstrate to
customers the use and operation of the Company's merchandise and
to develop good salesmanship. The Company's in-house training
program for new employees combines on-the-job training with the
use of a Company-developed manual. Sales personnel attend in-
house training sessions conducted by experienced salespeople or
manufacturer's representatives and receive sales, product and
other information in periodic meetings with managers.
Catalog Operations
The Company usually produces four versions of each of the Trend-
Lines and Golf Day catalogs annually. The Company mailed
approximately 11.8 million copies of its Trend-Lines catalog and
approximately 14.0 million copies of its Golf Day catalog during
fiscal 1997. The Trend-Lines and Golf Day catalog mailing lists
total approximately 1,140,000 and 830,000 customers (comprised of
selected previous buyers), respectively, and are supplemented
with various rented lists. The Company's catalogs are mailed to
prospective purchasers throughout the United States.
Catalogs are sent to persons on the Company's mailing list,
persons who have made inquiries, and persons on lists which the
Company rents from or exchanges with compatible companies. The
Company continually prospects for new customers by testing new
mailing lists, media and other programs in order to cost-
effectively increase the size of the Company's proprietary
customer mailing lists. The Company also strives to generate more
incremental revenue from existing customers. Through the use of
its management information systems, the Company constantly
monitors the product mix contained in its catalogs in order to
maximize profitability and satisfy its customers' needs.
A substantial majority of the Company's catalog orders and
customer inquiries are received daily by a sophisticated call
management distribution system via incoming toll-free ''800''
numbers. This system distributes calls to trained customer
service representatives and provides detailed call reporting and
analysis. The Company provides technical assistance to its
customers, on a toll-call basis. The Company usually ships orders
within 48 hours after receipt. In addition, the Company offers
express delivery.
The Company designs all of its catalogs in-house with desk top
publishing equipment. The Company's most recently mailed Trend-
Lines and Golf Day catalogs contained 68 and 36 pages,
respectively. The actual catalog printing is done by outside
printers, who also mail the catalogs.
Marketing and Advertising
The Company promotes retail store sales primarily through
special store promotions, direct mail circulars, geographically
concentrated newspaper and limited radio advertising, as well as
point-of-sale materials posted and distributed in the stores. The
Company also makes extensive use of special product promotions
and sales, combination offers, coupons, and other devices to
attract customers to its stores. The Company promotes catalog
sales principally by catalog mailings. Management tracks the
results of all advertising to determine future advertising
programs and expenditures.
Suppliers
The power and hand tool and golf equipment businesses both rely
on major vendors with well-known brand names, as well as smaller
specialty vendors. In fiscal 1997, one of the Company's vendors
accounted for approximately 9% of the Company's purchases. The
Company believes its vendor relationships are satisfactory.
In fiscal 1997, approximately 12% of the Company's tool
products and 2% of the Company's golf products were purchased
from overseas vendors. A substantial portion of the tool and golf
products sold under the Company's private labels are purchased
from overseas vendors. The majority of the Company's overseas
purchases are from Taiwan and, to a lesser extent, Korea, China,
England, Germany and Switzerland. This portion of the Company's
business is subject to the risks generally associated with
conducting business abroad, including adverse fluctuations in
currency rates, changes in import duties or quotas, the
imposition of taxes or other charges on imports, and disruptions
or delays in shipment or transportation. To date, these factors
have not had a material adverse impact on the Company's
operations.
Distribution
The Company leases a 286,000 square foot distribution center in
Revere, Massachusetts, and a 51,000 square foot warehouse in
Chelsea, Massachusetts, just outside of Boston. The Revere
facility also houses the Company's corporate offices and
telemarketing operation. The distribution center serves the
Woodworkers Warehouse and Golf Day retail stores and the
woodworking and golf catalogs. The Company also leases a 48,000
square foot distribution center in Hayward, California for its
Post Tool stores.
The geographic concentration of its stores facilitate the
Company's ability to make deliveries to stores on a frequent
basis, provide it with significant labor and freight savings, and
enable it to restock its stores' inventories promptly and
efficiently from its distribution centers.
Management Information Systems
The Company has invested significant resources in its
management information systems, which are located at its
corporate headquarters in Revere, Massachusetts and have been
integrated with its Post Tool operations in California. These
systems, which consist of a full range of retail, financial and
merchandising systems, include inventory distribution and
control, order fulfillment and inventory replenishment, staffing,
sales and marketing analyses and financial and merchandise
reporting. The Company's in-store point-of-sale computer system
provides operational data to management on a daily basis that is
used to track sales and forecast inventory requirements. The
Company's inventory control systems provide for automated
replenishment of merchandise to each of the Company's stores.
The Company has systems that support the entire catalog cycle
from purchasing merchandise and planning the catalogs, through
merchandise sales and delivery to the customers' homes. The
Company manages a catalog customer database which contains a list
of approximately 2.0 million customers. The catalog customer
database enables the Company to focus its catalog mailings on
customers most likely to purchase, analyzes merchandise trends
and buying patterns, and tracks the effectiveness of customer
promotional merchandising.
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 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.
Competition
The Company's power and hand tool and golf businesses are
highly competitive and compete with a number of other retailers,
mail order catalogs and magazine advertisers. Retail store
competitors of the Company's tool stores include home centers,
lumber yards, hardware stores, mass merchandisers, independent
tool stores, industrial dealers and other specialty stores.
Retail store competitors of the Company's golf stores include
sporting goods stores, mass merchandisers, pro shops and other
golf specialty stores.
The Company competes on the basis of price, selection and
service. Much of the Company's business is dependent upon
competitive pricing. Many of the Company's competitors are
substantially larger and have greater financial and other
resources than the Company. The entrance of new competitors or
the expansion of operations by existing competitors in the
Company's market areas could have a material adverse effect on
the Company's results of operations.
Registered Trademarks and Service Marks
Golf Day(Registered), Woodworkers Warehouse(Registered),
Trend-Lines(Registered), Carb-Tech(Registered), Post
Tool(Registered), Reliant(Trademark), Vulcan(Registered) and
Honors(Registered) are trademarks or service marks of the
Company. The Company intends to continue to register, when
deemed appropriate, trademarks and service marks. The Company
may also register trade names, when deemed appropriate.
Regulatory Matters
The Company's catalog business is subject to the Merchandise
Mail Order Rule and related regulations promulgated by the
Federal Trade Commission, which prohibit unfair methods of
competition and unfair or deceptive acts or practices in
connection with mail order sales and require sellers of mail
order merchandise to conform to certain rules of conduct with
respect to shipping dates and shipping delays. Management
believes that the Company is in compliance with such regulations.
Employees
The Company relies on many part time, flex time and seasonal
employees to meet its needs. At February 28, 1998, the Company
employed approximately 1,575 persons, of whom 1,003 were full
time and 572 were part time. None of the Company's employees are
represented by a labor union, and the Company considers its
employee relations to be satisfactory.
Executive Officers
Executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Stanley D. Black 61 Chairman of the Board of
Directors and Chief
Executive Officer
Richard Griner 54 President, Chief Operating
Officer and Director
Karl P. Sniady 45 Executive Vice President,
Finance and Administration,
Chief Financial Officer and
Director
Walter Spokowski 41 Executive Vice President,
Merchandising
Richard A. Binder 53 Vice President, Legal and
General Counsel
Frank P. Bussone 51 Vice President, Marketing
Walter J. Eutize 54 Vice President, Real Estate
Ronald L. Franklin 52 Vice President, Finance,
Treasurer and Director
Kathleen Harris 39 Vice President, Human
Resources
Name Age Position
- ---- --- --------
Larry Key 51 Vice President, Information
Systems
John W. Leitner 48 Vice President, Retail
John A. McGregor 48 Vice President, Golf Day
Merchandising
Norman W. Zagorsky 60 Vice President, Purchasing
Stanley D. Black, founder of the Company, has served as Chief
Executive Officer and Chairman of the Board of Directors of the
Company since its organization in 1981.
Richard Griner joined Trend-Lines as President, Chief
Operating Officer and Director in October, 1996. From June, 1986
to January, 1995, Mr. Griner was senior vice president of
operations for Family Dollar Stores.
Karl P. Sniady has been Executive Vice President of the
Company since June 1995 and Chief Financial Officer of the
Company since September 1995. From 1990 to 1995, Mr. Sniady was
chief financial officer of Auto Source, Inc., an automotive
aftermarket retailer and subsidiary of Canadian Tire.
Walter Spokowski joined Trend-Lines as Executive Vice
President, Merchandising in March, 1997. From 1984 to February,
1997, Mr. Spokowski was with The Home Depot, Inc., the world's
largest home improvement retailer. Mr. Spokowski served as
Divisional Merchandising Manager for the Southeast Division from
September, 1994 to March, 1997 and as Product Merchandise Manager
from March, 1991 to September, 1994.
Richard A. Binder has been Vice President and General Counsel
of the Company since August 1997. From 1992 until August 1997,
Mr. Binder was associated with the law firm of Barsh and Cohen,
P.C. specializing in commercial law and real estate acquisitions.
From 1989 to 1992 he was General Counsel for United Truck Leasing
Corporation.
Frank P. Bussone has been Vice President, Marketing since
January 1995. Mr. Bussone has served as Director of Marketing of
the Company from January 1988 until January 1995.
Walter J. Eutize, Vice President, Real Estate since August
1997. Mr. Eutize was Executive Vice President with the Bartlett
Group, Inc. from September, 1991 until August, 1997.
Ronald L. Franklin has been a Director of the Company since
May 1994, Treasurer since April 1994, and has served as Vice
President, Finance since March 1987.
Kathleen Harris has been Vice President, Human Resources,
since January 1995. Ms. Harris served as Director of Human
Resources of the Company since March 1994. From January 1991
until February 1994, Ms. Harris served as Manager of Human
Resources of the Company.
Larry Key has been Vice President, Information systems since
December, 1996. From January, 1991 to October, 1996, Mr. Key was
Senior MIS Director of Big B Drugs.
John W. Leitner has been Vice President, Retail of the Company
since March 1994. From August 1992 to February 1994, Mr. Leitner
was an independent consultant. From November 1991 to July 1992,
Mr. Leitner was director of stores elect of Child World, Inc..
John A. McGregor has been Vice President, Golf Day
Merchandising since August 1993. From April 1987 until July
1993, Mr. McGregor served as Vice President, Development of the
Company.
Norman W. Zagorsky has been Vice President, Purchasing since
January 1997 and Vice President, Trend-Lines Merchandising from
March 1987 to January, 1997.
ITEM 2. PROPERTIES
The Company's principal executive offices and its distribution
and centralized telemarketing operation are currently located in
a common facility in Revere, Massachusetts, where the Company
leases an aggregate of approximately 286,000 square feet of
space. This lease expires in November, 2004 and has two five-
year renewal options . The Company also leases a distribution
facility in Hayward, California of approximately 48,000 square
feet of space. This lease expires on May 31, 2001 and has a
seven-year renewal option. In addition, the Company leases a
51,000 square foot warehouse facility in Chelsea, Massachusetts
from an affiliate of Stanley D. Black, the Chairman of the Board
and Chief Executive Officer of the Company. This lease expires
in 2005. The Company is using this space for additional storage.
As of February 28, 1998, the Company operated 204 stores, all
but two of which were leased. The leases typically provide for an
initial term of five to ten years, with renewal options
permitting the Company to extend the term. In all cases, the
Company pays fixed annual rents. Many of the Company's leases
provide for an increase in annual fixed rental payments during
the lease term and allow the Company to terminate the lease
before the end of the lease term without penalty so long as
proper notice is provided. Most leases also require the Company
to pay real estate taxes, maintenance and repair costs,
insurance, utilities and, in shopping center locations, to make
contributions toward the shopping center's common area operating
costs. As of February 28, 1998, the Company's store leases,
assuming the Company exercises all lease renewal options, were
scheduled to expire as follows:
Years Lease Number of Store Leases
Terms Expire Expiring
1998-2000 20
2001-2003 23
2004-2005 45
2006 and later 114
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Price
The Class A Common Stock is included in the Nasdaq National
Market under the symbol ''TRND.'' Prior to June 23, 1994, there
was no public market for the Class A Common Stock. The following
table sets forth the high and low sales prices for the Class A
Common Stock for the periods indicated as reported by the Nasdaq
National Market, adjusted to reflect a three-for-two stock split
paid on September 1, 1995.
High Low
Fiscal Year Ended February 28, 1998
First Quarter $7.44 $5.00
Second Quarter $7.75 $6.00
Third Quarter $8.50 $6.38
Fourth Quarter $7.63 $6.13
Fiscal Year Ended March 1, 1997
First Quarter $6.00 $3.50
Second Quarter $5.25 $3.88
Third Quarter $5.38 $3.50
Fourth Quarter $6.00 $4.63
Fiscal Year Ended March 2, 1996
First Quarter $9.67 $7.67
Second Quarter $14.83 $9.00
Third Quarter $14.75 $11.50
Fourth Quarter $12.00 $3.63
On April 30, 1998 the last reported sales price of the Class A
Common Stock on the Nasdaq National Market was $7.625 per share.
As of April 30, 1998 there were approximately 3,600 stockholders
of record of the Class A Common Stock.
Dividends
The Company does not anticipate declaring any cash dividends
in the foreseeable future. It is the current policy of the
Company to retain any earnings to finance the operations and
expansion of the Company's business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain financial data with
respect to the Company for each of the five years in the fiscal
period ended February 28, 1998.
Fiscal Years Ended
(In thousands, except per share data)
February 28, March 1, March 2, February 28, February 28,
1998 1997 1996(1) 1995 1994
Statements of Operations
Data(2):
Net sales $231,143 $208,582 $174,795 $128,332 $99,958
Cost of sales 157,129 139,871 117,447 79,442 62,274
Gross profit 74,014 68,711 57,348 48,890 37,684
Selling, general and 63,483 61,045 59,845 40,096 32,134
administrative expenses
Restructuring charge - - 1,397 - -
Income (loss) from 10,531 7,666 (3,894) 8,794 5,550
operations
Interest expense, net 3,239 2,355 1,654 373 742
Income (loss) before 7,292 5,311 (5,548) 8,421 4,808
provision (benefit)
for income taxes
Provision (benefit) for 2,844 2,061 (2,229) 2,990 210
income taxes
Net income (loss) $4,448 $3,250 $(3,319) $5,431 $4,598
Pro forma net income (loss)(3) $5,051 $2,888
Basic net income (loss) per $.42 $.30 $(.33) $.59 $.44
share (4)
Diluted net income (loss) $.40 $.29 $(.33) $.56 $.43
per share(4)
Basic weighted average of 10,588 10,973 10,163 8,541 6,615
shares outstanding (4)
Diluted weighted average 11,122 11,255 10,163 8,966 6,770
number of shares
outstanding(4)
Store Operating Data:
Net store sales (000's) $171,612 $140,342 $98,515 $52,578 $26,457
Percentage increase 9.8% 19.6% (0.3%) 1.4% 6.0%
(decrease) in comparable
net store sales(5)
Number of stores at end of
period:
Tool stores 133 119 111 82(6) 30
Golf stores 71(7) 40 30 10 5
Catalog Operating Data:
Net catalog sales $59,531 $68,240 $76,280 $75,754 $73,501
February 28, March 1, March 2, February 28, February 28,
1998 1997 1996(1) 1995 1994
Balance Sheet Data:
Working capital $ 21,774 $ 30,060 $ 31,406 $ 17,224 $ 2,457
Total assets 155,452 121,054 100,658 66,539 29,683
Total debt 45,760 27,757 21,292 12,071 7,680
Stockholders' equity 47,751 43,406 42,288 25,854 4,582
(1) The Company changed its fiscal year-end to the Saturday
closest to the last day of February. As a result, the
Company's 1995 Fiscal year, which ended on March 2, 1996, is a
53-week year and includes three extra days compared to the
prior year.
(2) The Company operated as an S Corporation from March 1,
1987 through June 28, 1994 and, as a result, its taxable
income (loss) during that period was passed through to its
stockholders for federal income tax purposes. Accordingly,
the historical financial statements do not include a provision
for federal and state income taxes for operations through June
28, 1994, except for certain state income taxes imposed at the
corporate level. See Notes 2 and 3 to Notes to Consolidated
Financial Statements.
(3) Pro forma net income (loss) gives effect to a provision
for income taxes that would have been required had the Company
been taxed as a C Corporation from March 1, 1993 through June
28, 1994. See Notes 2 and 3 to Notes to Consolidated Financial
Statements.
(4) Adjusted to reflect a three-for-two split of the Class A
and Class B Common Stock paid on September 1, 1995 and July
17, 1996, respectively. See Note 5 to Notes to Consolidated
Financial Statements.
(5) Calculated using net sales of comparable stores opened
for at least a 13 month period.
(6) Reflects the purchase in January 1995 of 17 Post Tool retail
stores.
(7) Reflects the acquisition in January 1998 of 13 golf stores.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
Until recent years, the Company's net sales have been primarily
attributable to its mail order catalog operations, especially
sales of power and hand tools and accessories. Beginning with
fiscal 1995, the Company derived a greater portion of its net
sales from its retail store operations than its mail order
catalog operations. During fiscal 1997, the Company continued
the expansion of its retail store operations, opening 18
Woodworkers Warehouse and Post Tool, and 31 Golf Day retail
stores, which includes the acquisition of 13 Nevada Bob's
franchised stores in January, 1998 which were immediately
converted to Golf Day retail stores. The Company expects that
the expansion of its retail store operations will continue to
generate an increasing percentage of the Company's future growth.
As of February 28, 1998, the Company operated 133 Woodworkers
Warehouse and Post Tool retail stores and 71 Golf Day retail
stores.
The following table presents net sales and overall gross margin
data of the Company for the periods indicated:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
(In thousands, except percentage data)
Net Sales:
Retail-
Tools $133,000 $115,183 $87,192
Golf 38,612 25,158 11,323
Catalog-
Trend-Lines 34,451 43,283 51,831
Golf Day 25,080 24,958 24,449
Total $231,143 $208,582 $174,795
Gross Margin 32.0% 32.9% 32.8%
On an overall basis, the Company's catalog sales yield higher
gross profit margins than retail store sales as a result of
differences in product mix and greater promotional pricing in
retail sales. Therefore, the Company anticipates that its total
gross profit as a percentage of net sales will decrease as retail
store sales become a greater percentage of the Company's total
sales. During fiscal 1997, the Company experienced a decrease in
its gross profit as a percentage of net sales as compared to
fiscal 1996, primarily due its changing sales mix. The catalog
business has both substantially higher gross margins and expenses
than does a retail store. Therefore, as the contribution from
retail stores becomes a larger proportion of total sales, gross
margins and selling, general and administrative expenses will
have a natural downward bias. With respect to both catalog and
retail store operations, sales of golf products have yielded
higher gross profit percentages than sales of tools.
In February, 1998 the Company implemented a warehouse
management system in order to more efficiently and accurately
process inventory through its distribution center. As a result
of conversion to the new system, the orderly flow of merchandise
to the Company's retail and catalog customers was interrupted.
While this problem may have an impact on the Company's first
quarter 1998 results, the Company is of the current view that
future operations will not be adversely affected by issues
related to its warehouse management system.
Results of Operations
The following table sets forth, for the periods indicated,
certain financial data as a percentage of net sales:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Net sales 100.0% 100.0% 100.0%
Cost of sales 68.0 67.1 67.2
Gross profit 32.0 32.9 32.8
Selling, general and
Administrative expenses 27.5 29.2 34.2
Restructuring charge -- -- .8
Income (loss) from operations 4.6 3.7 (2.2)
Interest expense, net 1.4 1.1 1.0
Income (loss) before
income taxes 3.2% 2.6% (3.2)%
Fiscal 1997 versus fiscal 1996
Net sales for fiscal 1997 increased by $22.5 million, or
10.8%, from $208.6 million in fiscal 1996 to $231.1 million in
fiscal 1997 as a result of a $31.3 million, or 22.3%, increase in
net store sales, and a $8.7 million, or 12.8%, decrease in net
catalog sales. The increase in net store sales was primarily due
to the net addition of 45 new stores as well as the impact of a
full year of operations for 26 stores opened in the previous
fiscal year. In addition, comparable store sales increased by
9.8%. The Company believes that the increase in comparable net
store sales was a result of its continued promotional pricing
strategy as well as closing 8 stores in fiscal 1996 and 6 stores
in fiscal 1997. The decrease in net catalog sales was
attributable to a 20.3% decrease in sales from the Company's
Trend-Lines catalog as compared to fiscal 1996. Sales from the
Company's Golf Day catalog increased 0.5% as compared to fiscal
1996. During fiscal 1997, Golf Day catalog sales benefited from
the promotion of close-out merchandise from major golf
manufacturers, which offset the impact of new store openings.
The opening or acquisition of retail stores in areas previously
only serviced by its catalogs has resulted in a decrease in the
Company's catalog sales in those areas.
Gross profit for fiscal 1997 increased 7.7%, from $68.7
million in fiscal 1996 to $74.0 million in fiscal 1997. As a
percentage of net sales, gross profit decreased to 32.0% in
fiscal 1997, compared to 32.9% in fiscal 1996. The decrease in
gross profit as a percentage of net sales was primarily due to
the Company's changing sales mix. The catalog business has both
substantially higher gross margins and expenses than does a
retail store. Therefore, as the contribution from retail stores
becomes a larger proportion of total sales, gross margins and
selling, general and administrative expenses will have a natural
downward bias.
Selling, general and administrative expenses for fiscal 1997
increased 4.0%, from $61.0 million in fiscal 1996 to $63.5
million in fiscal 1997. As a percentage of net sales, selling,
general and administrative expenses decreased to 27.5% in fiscal
1997 from 29.3% in fiscal 1996. The increases in selling,
general and administrative expenses were primarily related to the
Company's retail expansion. The decrease in selling, general and
administrative expenses as a percentage of net sales was
primarily attributable to increased operational efficiencies
associated with the Company's expansion and the lower cost of
operating retail stores as compared to catalog operations.
In the fourth quarter of fiscal 1995, the Company recorded a
restructuring charge of $1.4 million, representing the costs
associated with reorganizing its operations. These costs
included the rent and related expenses for the closing of 12
retail store locations (of which 6 were closed late in the fourth
quarter of fiscal 1995 and the remainder were closed in fiscal
1996), and expenses related to the consolidation of the Company's
distribution centers and the severance and related benefits for
terminated employees.
Approximately $.3 million and $1.1 million was charged
against the restructuring reserve in fiscal 1997 and 1996,
respectively, and as of February 28, 1998 the restructuring was
complete.
Interest expense, net of interest income for fiscal 1997,
increased from $2.4 million in fiscal 1996 to $3.2 million in
fiscal 1997. The increase in interest expense is attributable to
an increase in the Company's bank debt, including borrowings for
the acquisition of Golf Acquisition Limited Partnership.
Fiscal 1996 versus fiscal 1995
Net sales for fiscal 1996 increased by $33.8 million, or
19.3%, from $174.8 million in fiscal 1995 to $208.6 million in
fiscal 1996 as a result of a $41.8 million, or 42.4%, increase in
net store sales, and a $8.0 million, or 10.5%, decrease in net
catalog sales. The increase in net store sales was primarily due
to the addition of 26 new stores as well as the impact of a full
year of operations for 57 stores opened in the previous fiscal
year. In addition, comparable store sales increased by 19.6%.
The Company believes that the increase in comparable net store
sales was a result of adopting a more promotional pricing
strategy as well as closing 6 stores in the fourth quarter of
fiscal 1995 and 8 stores in fiscal 1996. The decrease in net
catalog sales was attributable to a 16.5% decrease in sales from
the Company's Trend-Lines catalog as compared to fiscal 1995.
Sales from the Company's Golf Day catalog increased 2.1% as
compared to fiscal 1995. The opening of retail stores in areas
previously only serviced by its catalogs has resulted in a
decrease in the Company's catalog sales in those areas.
Gross profit for fiscal 1996 increased 19.8%, from $57.3
million in fiscal 1995 to $68.7 million in fiscal 1996. As a
percentage of net sales, gross profit increased to 32.9% in
fiscal 1996, compared to 32.8% in fiscal 1995. The increase in
gross profit as a percentage of net sales was primarily due to
improved purchasing efficiencies, as well as a more favorable
shrink experience in 1996.
Selling, general and administrative expenses for fiscal 1996
increased 2.0%, from $59.8 million in fiscal 1995 to $61.0
million in fiscal 1996. As a percentage of net sales, selling,
general and administrative expenses decreased to 29.3% in fiscal
1996 from 34.2% in fiscal 1995. The increases in selling,
general and administrative expenses were primarily related to the
Company's retail expansion. The decrease in selling, general and
administrative expenses as a percentage of net sales was
primarily attributable to increased operational efficiencies
associated with the Company's expansion and the lower cost of
operating retail stores as compared to catalog operations.
In the fourth quarter of fiscal 1995, the Company recorded a
restructuring charge of $1.4 million, representing the costs
associated with reorganizing its operations. These costs
included the rent and related expenses for the closing of 12
retail store locations (of which 6 were closed late in the fourth
quarter of fiscal 1995 and the remainder were closed in fiscal
1996), and expenses related to the consolidation of the Company's
distribution centers and the severance and related benefits for
terminated employees.
As of March 1, 1997, approximately $0.7 million was charged
against the restructuring reserve for store closing related
activities. In addition, approximately $0.4 million associated
with the consolidation of the Company's distribution centers was
also charged against the restructuring reserve in fiscal year
1996. As of March 1, 1997 and March 2, 1996, approximately $0.3
million and $1.4 million of restructuring costs are included in
accrued expenses in the accompanying consolidated balance sheets.
There were no non-cash adjustments to the accrual during fiscal
year ended March 1, 1997.
Interest expense, net of interest income for fiscal 1996,
increased from $1.7 million in fiscal 1995 to $2.4 million in
fiscal 1996. The increase in interest expense is attributable to
an increase in the Company's bank debt.
Liquidity and Capital Resources
During fiscal 1997, the Company's working capital decreased
by $8.3 million, from $30.1 million as of March 1, 1997 to $21.8
million as of February 28, 1998. The decrease in working capital
resulted primarily from a $18.6 million increase in the Company's
bank credit facility, as well as an increase of $6.6 million in
accounts payable and accrued expenses. These increases in
liabilities were partially offset by a $14.2 million increase in
inventories, principally to support its expanding retail
operations, and a $6.4 million increase in net accounts
receivable.
During fiscal 1997, net cash used in operating activities
was approximately $7.0 million. The primary use of the cash was
the $20.6 million increase in inventories and accounts
receivable, which was offset by the $6.6 million increase in
accounts payable and accrued expenses.
During fiscal 1997, net cash used in investing activities
was approximately $11.2 million, of which $7.3 million was for
the purchase of property and equipment required for the Company's
retail expansion and $4.1 million for the acquisition of the 13
Nevada Bob's franchised stores in January, 1998.
During fiscal 1997, net cash provided by financing
activities was approximately $17.9 million, primarily
attributable to a $18.6 million increase in borrowings on the
Company's bank credit facility, which was partially offset by a
$0.6 million decrease in net payments on capital lease
obligations and a $0.3 million repurchase of the Company's Class
A common stock.
On August 15, 1996, the Company authorized the repurchase of
up to 500,000 shares of its Class A Common Stock. As of February
28, 1998, 500,000 shares have been repurchased at a cost of
approximately $2.5 million.
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
$43.8 million (including letters of credit totaling approximately
$0.6 million) was outstanding as of February 28, 1998. The
Company is permitted to borrow against its bank credit facility
based on a borrowing formula related to inventory levels. 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 February 28, 1998) or LIBOR plus 2.25% (7.63% at
February 28, 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. At February 28, 1998
the Company exceeded the fixed charges ratio and realized the
interest savings under the bank credit agreement. 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 a 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. For fiscal 1998, the Company currently plans to
open between 45 to 55 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 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.
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, however, there can be no
assurance that this will be the case. See "Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995."
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements and Supplementary Data
of the Company are listed under Part IV, Item 14, in this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on accounting principles or
practices or financial statement disclosure between the Company
and its accountants during the fiscal year ended February 28,
1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby
incorporated by reference to the text appearing under Part I,
Item 1 - Business under the caption "Executive Officers and Other
Significant Employees" in this report, and by reference to the
Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed by the Company within 120 days after the
close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) (1) CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of February 28, 1998 and March
1, 1997 F-3
Consolidated Statements of Operations for the Fiscal Years
ended February 28, 1998, March 1, 1997 and March 2, 1996 F-4
Consolidated Statements of Stockholders' Equity for the Fiscal
Years ended February 28, 1998, March 1, 1997 and March 2, 1996 F-5
Consolidated Statements of Cash Flows for the Fiscal Years
ended February 28, 1998, March 1, 1997 and March 2, 1996 F-6
Notes to Consolidated Financial Statements F-7
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts S-1
Other schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the financial statements or notes
thereto.
(A) (3) EXHIBITS
Exhibit
Number Reference
3.01 Revised Articles of Organization, as amended. A
3.02 Restated By-Laws. A
4.01 Specimen Certificate of Class A Common Stock. A
4.02 Description of Capital Stock (contained in the Form A
of the Registrant's Restated Articles of Organization
referenced above).
* 10.01 1993 Amended and Restated Stock Option Plan. A
* 10.02 1994 Non-Qualified Stock Option Plan For Non- A
Employee Directors.
* 10.03 Form of Indemnification Agreement for directors A
and officers of Registrant.
10.07 Agreement of Merger dated as of July 1, 1993 A
between Coburn Investments, Inc. and the Registrant.
10.08 Master Note dated November 20, 1993, payable to A
Coburn Investments, Inc. to the Registrant, with
related Loan and Security Agreement.
10.10 Commercial Lease dated December 3, 1987, as amended A
as of November 1, 1993, between Stanley D. Black
Trustee of Mystic Limited Realty Trust and the
Registrant.
10.11 Three Promissory Notes, dated July 1, 1989, payable A
by the Registrant to Stanley D. Black, and related
Security Agreement.
10.12 Warehouse lease dated July 11, 1994 between Syroco, B
Inc. and the Registrant.
10.13 Loan and Security Agreement dated July 3, 1996 C
10.14 Purchase and Sale Agreement dated as of December D
19, 1994 between Post Tool, Inc. and the Registrant.
10.15 Asset Purchase Agreement dated as of December, 31, Filed
1997 between Golf Acquisition Limited Partnership herewith
and the Registrant.
21.01 Subsidiaries of the Registrant. E
23.01 Consent of Arthur Andersen LLP. Filed
herewith
27.01 Financial Data Schedule Filed
herewith
____________________
A Incorporated by reference to the Company's registration
statement on Form S-1 (Registration No. 33-78772) and by
reference to Exhibit 3.0 to the Company's quarterly report on
Form 10-Q for the fiscal quarter ended August 31, 1996. The
number set forth herein is the number of the Exhibit in said
registration statement.
B Incorporated by reference to Exhibit 7.1 to the Company's
current report on Form 8-K dated July 11, 1994.
C Incorporated by reference to Exhibit 10.0 to the Company's
quarterly report on Form 10-Q
for the fiscal quarter ended August 31, 1996.
D Incorporated by reference to Exhibit 1 to the Company's
current report on Form 8-K dated January 1, 1995.
E Incorporated by reference to Exhibit 21.01 to the Company's
annual report on Form 10-K for the fiscal year ended March 2,
1996.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, reference is made to the documents previously
filed with the Securities and Exchange Commission, which documents
are hereby incorporated by reference.
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated January 19, 1998 reporting that
the Company had issued a press release announcing that it had
entered into a definitive agreement to acquire 13 Nevada Bob's
franchised stores located in the New England area from a private
investment partnership.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TREND-LINES, INC.
Date: May 20, 1998 By: /s/ Stanley D. Black
-----------------------------------------
Stanley D. Black, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/ STANLEY D. BLACK Director and Chief May 20, 1998
-------------------------- Executive Officer
Stanley D. Black
/s/ KARL P. SNIADY Director and Executive Vice May 20, 1998
-------------------------- President, Finance and
Karl P. Sniady Administration (Principal
Financial and Accounting Officer)
/s/ RONALD L. FRANKLIN Director May 20, 1998
--------------------------
Ronald L. Franklin
/s/ RICHARD GRINER President, Chief Operating Officer May 20, 1998
-------------------------- and Director
Richard Griner
/s/ RICHARD A. MANDELL Director May 20, 1998
--------------------------
Richard A. Mandell
/s/ IRWIN WINTER Director May 20, 1998
--------------------------
Irwin Winter
TREND-LINES, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements
Page
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of February 28, 1998 and
March 1, 1997 F-3
Consolidated Statements of Operations for the Fiscal Years
Ended February 28, 1998, March 1, 1997 and March 2, 1996 F-4
Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended February 28, 1998, March 1, 1997
and March 2, 1996 F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended February 28, 1998, March 1, 1997 and March 2, 1996 F-6
Notes to Consolidated Financial Statements F-7
Report of Independent Public Accountants
To Trend-Lines, Inc.:
We have audited the accompanying consolidated balance sheets of
Trend-Lines, Inc. (a Massachusetts corporation) and subsidiary as
of February 28, 1998 and March 1, 1997, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the years ended February 28, 1998, March 1, 1997 and
March 2, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Trend-
Lines, Inc. and subsidiary as of February 28, 1998 and March 1,
1997, and the results of their operations and their cash flows for
the years ended February 28, 1998, March 1, 1997 and March 2, 1996,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The
schedule listed in the index at item 14(a)(2) is the responsibility
of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. The
schedule has been subjected to the auditing procedures applied in
our audits of the basic consolidated financial statements and, in
our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1998
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, except share amounts)
Assets
February 28, March 1,
1998 1997
Current Assets:
Cash and cash equivalents $ 669 $ 1,006
Accounts receivable, net 18,546 12,155
Inventories 102,172 85,909
Prepaid expenses and other current assets 6,906 6,462
Total current assets 128,293 105,532
Property and Equipment, net 19,387 14,753
Intangible Assets, net 6,973 -
Other Assets 799 769
$155,452 $121,054
Liabilities and Stockholders' Equity
Current Liabilities:
Bank credit facility $ 43,801 $ 25,196
Current portion of capital lease obligations 777 686
Accounts payable 53,830 43,900
Accrued expenses 8,111 5,690
Total current liabilities 106,519 75,472
Capital Lease Obligations, net of current portion 1,182 1,875
Deferred Income Tax Liabilities - 301
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Common stock, $.01 par value-
Class A-
Authorized-20,000,000 shares
Issued-6,385,178 and 6,302,534 shares at
February 28, 1998 and March 1, 1997,
respectively 64 63
Class B-
Authorized-5,000,000 shares
Issued and outstanding-4,738,066 and
4,750,026 shares at February 28, 1998
and March 1, 1997, respectively 47 47
Additional paid-in capital 41,524 41,318
Retained earnings 8,576 4,128
Less-500,000 and 440,000 Class A shares
held in treasury at February 28, 1998
and March 1, 1997, respectively, at cost (2,460) (2,150)
Total stockholders' equity 47,751 43,406
$155,452 $121,054
The accompanying notes are an integral part of these consolidated
financial statements
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(In Thousands, except share and per share amounts)
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Net Sales $ 231,143 $ 208,582 $ 174,795
Cost of Sales 157,129 139,871 117,447
Gross profit 74,014 68,711 57,348
Selling, General and Administrative
Expenses 63,483 61,045 59,845
Restructuring Charge - - 1,397
Income (loss) from operations 10,531 7,666 (3,894)
Interest Expense, net 3,239 2,355 1,654
Income (loss) before provision
(benefit) for income taxes 7,292 5,311 (5,548)
Provision (Benefit) for Income Taxes 2,844 2,061 (2,229)
Net income (loss) $ 4,448 $ 3,250 $ (3,319)
Basic Net Income (Loss) per Share $ .42 $ .30 $ (.33)
Diluted Net Income (Loss) per Share $ .40 $ .29 $ (.33)
Basic Weighted Average Shares
Outstanding (Note 2) 10,588,021 10,973,416 10,163,454
Diluted Weighted Average Shares
Outstanding (Note 2) 11,122,417 11,255,362 10,163,454
The accompanying notes are an integral part of these consolidated
financial statements.
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(In Thousands, except share amounts)
Class A Class B
Common Stock Common Stock Additional Treasury Stock Total
Number $.01 Number $.01 Paid-in Retained Number Stockholders'
of Shares Par Value of Shares Par Value Capital Earnings of Shares Amount Equity
Balance, 3,241,437 $ 32 6,270,911 $ 63 $21,562 $ 4,197 - $ - $ 25,854
February 28, 1995
Conversion of 1,480,000 15 (1,480,000) (15) - - - - -
Class B shares
to Class A
shares
Proceeds from 1,500,000 15 - - 19,581 - - - 19,596
public offering,
less offering
expenses
Proceeds from 31,528 - - - 157 - - - 157
exercise of
stock options,
including related
tax benefit
Net loss - - - - - (3,319) - - (3,319)
Balance, March 2, 6,252,965 $ 62 4,790,911 $ 48 $41,300 $ 878 - $ - $ 42,288
1996
Conversion of Class 40,885 1 (40,885) (1) - - - - -
B shares to Class
A shares
Proceeds from 8,684 - - - 18 - - - 18
exercise of stock
options
Treasury stock - - - - - - 440,000 (2,150) (2,150)
purchase
Net income - - - - - 3,250 - - 3,250
Balance, March 1, 6,302,534 $ 63 4,750,026 $ 47 $41,318 $4,128 440,000 $(2,150) $ 43,406
1997
Conversion of Class 11,960 - (11,960) - - - - - -
B shares to Class
A shares
Proceeds from 70,684 1 - - 206 - - - 207
exercise of
stock options
Treasury stock - - - - - 60,000 (310) (310)
purchase
Net income - - - - - 4,448 - - 4,448
Balance, February 6,385,178 $ 64 4,738,066 $ 47 $41,524 $8,576 500,000 $(2,460) $47,751
28, 1998
The accompanying notes are an integral part of these consolidated
financial statements.
TREND-LINES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Cash Flows from Operating Activities:
Net income (loss) $ 4,448 $ 3,250 $(3,319)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities-
Depreciation and amortization 2,836 1,832 1,556
Deferred income taxes 216 601 (574)
Restructuring charge - - 1,397
(Gain) loss on sale of property and - (18) 549
equipment
Changes in current assets and
liabilities, net of effects of
acquisition-
Accounts receivable (6,391) (3,836) (1,573)
Refundable income taxes - 3,517 (4,401)
Inventories (14,296) (17,024) (23,733)
Prepaid expenses and other current (405) (386) (333)
assets
Accounts payable 5,695 13,424 4,822
Accrued expenses 904 (912) 2,245
Net cash provided by (used in) (6,993) 448 (23,364)
operating activities
Cash Flows from Investing Activities:
Purchases of property and equipment (7,188) (3,500) (4,861)
Proceeds from sale of property and 73 70 -
equipment
Acquisition, net of cash acquired (4,064) - -
(Increase) decrease in other assets - (459) 472
Net cash used in investing (11,179) (3,889) (4,389)
activities
Cash Flows from Financing Activities:
Proceeds from public offerings, net - - 19,596
Proceeds from exercise of stock options 207 18 157
Net borrowings under bank credit 18,605 6,713 8,110
facilities
Proceeds from sale leaseback arrangement - - 1,099
Net payments on capital lease (667) (570) (1,134)
obligations
Purchases of treasury stock (310) (2,150) -
Net cash provided by financing 17,835 4,011 27,828
activities
Net Increase (Decrease) in Cash And Cash (337) 570 75
Equivalents
Cash and Cash Equivalents, beginning of 1,006 436 361
year
Cash and Cash Equivalents, end of year $ 669 $ 1,006 $ 436
Supplemental Disclosure of Cash Flow
Information:
Cash paid for-
Interest $ 3,212 $ 2,650 $ 1,676
Income taxes $ 2,418 $ 176 $ 3,265
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Equipment acquired under capital lease $ 65 $ 322 $ 1,146
obligations
Summary of entity acquired -
Fair value of assets acquired 9,273 - -
Liabilities assumed 5,209 - -
Cash paid, net of cash acquired $ 4,064 $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
TREND-LINES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Operations
Trend-Lines, Inc. (the Company) is a specialty retailer,
primarily of woodworking tools and accessories sold through its
nationally distributed Trend-Lines mail-order catalog and
through Woodworkers Warehouse retail stores located in New
England, New York, New Jersey, Pennsylvania and Delaware, as
well as Post Tool stores located in California and Nevada. The
Company is also a specialty retailer of golf equipment and
supplies sold through its Golf Day retail stores located in New
England, New York, New Jersey, Delaware, Pennsylvania and
California and its nationally distributed mail-order catalog.
On June 30, 1994, the Company completed the issuance of
2,550,000 shares of Class A common stock in an initial public
offering (IPO). Net proceeds to the Company were approximately
$19.7 million after deducting expenses of the offering.
Subsequently, on July 29, 1994, the Company completed the
issuance of 337,500 shares of Class A common stock pursuant to
the exercise of the underwriters' IPO overallotment option,
resulting in additional net proceeds to the Company of
approximately $2.7 million.
On September 22, 1995, the Company completed the issuance of a
total of 2,500,000 shares of Class A common stock, of which
1,000,000 shares were sold by a selling stockholder. Net
proceeds to the Company were approximately $19.6 million after
deducting expenses of the offering.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the
application of certain accounting policies described in this
note and elsewhere in the accompanying notes to consolidated
financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of the Company and Post Tool, Inc., its wholly
owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Fiscal Year
On January 17, 1996, the Board of Directors approved a
change in the Company's fiscal year-end from the last day in
February to the Saturday closest to the last day of
February. As a result, the Company's fiscal 1995 year ended
on March 2, 1996, is a 53-week year and included three extra
days compared to the prior year. Fiscal year 1996 refers to
the year ended March 1, 1997 and fiscal year 1997 refers to
the year ended February 28, 1998.
(2) Summary of Significant Accounting Policies (Continued)
(c) Management Estimates Used in the Preparation of Financial
Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
(e) Revenue Recognition
Revenue from retail operations is recognized at the time of
sale. Revenue from catalog sales is recognized upon
shipment to the customer. The Company expenses warranty
costs as incurred, as historically such costs have not been
significant.
(f) Inventories
The Company values inventories, which consist of merchandise
held for resale, at the lower of cost (first-in, first-out)
or market.
(g) Prepaid Catalog Expenses
The Company capitalizes direct costs relating to the
production and distribution of its mail-order catalogs.
These costs are charged to operations in relation to the
revenues that are derived from the mailings, which is
generally one year or less from the date of mailing.
Management's revenue estimates are used to determine the
cost recovery period of the prepaid catalog expenses.
(h) Store Preopening Costs
The Company expenses, as incurred, all preopening costs
related to each new retail store location.
(2) Summary of Significant Accounting Policies (Continued)
(i) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed under both the straight-line and
accelerated methods in amounts that allocate the cost of all
assets over their estimated useful lives. In fiscal 1995,
the Company revised the estimated remaining lives of certain
assets. The effect of this change in accounting estimate
was a reduction of depreciation expense by approximately
$0.4 million in fiscal 1995.
Estimated
Asset Classification Useful Lives
Equipment 5-10 Years
Equipment under capital leases Life of lease
or life of
asset,
whichever is
shorter
Furniture and fixtures 10 Years
Building 39.5 Years
Leasehold improvements Initial lease
term or life
of asset,
whichever is
shorter
(j) Customer Prepayments
Advance payments received from customers are included in
accrued expenses in the accompanying consolidated balance
sheets and are recognized as revenue upon shipment.
(k) Concentration of Credit Risk
Financial instruments that subject the Company to credit
risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company places its cash and
cash equivalents in highly rated financial institutions.
The Company maintains an allowance for potential credit
losses.
(2) Summary of Significant Accounting Policies (Continued)
(l) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash
and cash equivalents and its bank credit facility. The
carrying amounts of the Company's cash and cash equivalents
approximate fair value. The bank credit facility bears
interest at variable market rates; therefore, the carrying
amount approximates fair value.
(m) Credit Card Policy
The Company extends credit to customers through third-party
credit cards, including its private-label credit card.
Credit under these accounts is extended by third parties,
and accordingly, the Company bears minimal financial risk
under these agreements as a result of credit card fraud.
The Company's agreements with third-party credit companies
provide for the electronic processing of credit approvals
and electronic submission of transactions. Upon the
submission of these transactions to the credit card
companies, payment is transmitted directly to the Company's
bank account usually within two to four days of the sales
transaction. Amounts relating to fiscal year sales not
received by the Company before year-end are included in
accounts receivable in the accompanying consolidated balance
sheets. Fees incurred on credit card sales are included in
selling, general and administrative expenses.
(n) Income Taxes
Income taxes are provided using the liability method of
accounting in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. A deferred tax asset or liability is recorded for
all temporary differences between financial and tax
reporting. Deferred tax expense (benefit) results from the
net change during the year of deferred tax assets and
liabilities.
(2) Summary of Significant Accounting Policies (Continued)
(o) Earnings per Share
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 Earning 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 number
of dilutive 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.
Common stock equivalents have not been considered in the
calculation of net loss per share for the year ended
March 2, 1996, as their effect would be antidilutive.
Outstanding shares have been adjusted to reflect a three-for-
two split of the Class A common stock payable on
September 1, 1995 to stockholders of record on August 24,
1995 and a three-for-two split of the Class B common stock
effected in the form of a stock dividend on July 17, 1996
(see Note 6). The stock splits have been retroactively
reflected in the accompanying consolidated financial
statements.
Dilutive securities include outstanding options under the
Company's stock option plan. Below is a summary of the
shares used in calculating basic and dilutited earnings per
share:
February 28, March 1, March 2,
1998 1997 1996
Weighted average number of shares 10,588,021 10,973,416 10,163,454
of common stock outstanding
Dilutive stock options 534,396 281,946 -
Shares used in calculating 11,122,417 11,255,362 10,163,454
diluted earnings per share
(2) Summary of Significant Accounting Policies (Continued)
(p) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance
with SFAS No, 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of.
The Company continually reviews its long-lived assets for
events or changes in circumstances that might indicate the
carrying amount of the assets may not be recoverable. The
Company assesses the recoverability of assets by determining
whether the depreciation of such assets over their remaining
lives can be recovered through projected undiscounted future
cash flows. The amount of impairment, if any, is measured
based on projected discounted future cash flows using a
discount rate reflecting the Company's average cost of
funds. At February 28, 1998, no such impairment of assets
was indicated.
Goodwill represents the excess of the purchase price over
the fair market value of identified net assets acquired.
Goodwill is being amortized using the straight-line method
over a period of 20 years, the estimated useful life. The
Company recognized $59,000 of goodwill amortization during
fiscal year 1997. The Company continually evaluates whether
events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill may not be
recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company estimates the
related business segment's undiscounted operating income
over the remaining life of the goodwill to measure whether
goodwill is recoverable. As of February 28, 1998, there
have been no write-downs of goodwill.
(q) Reclassifications
Certain amounts in the prior year's financial statements
have been reclassified in order to conform with the current
year's presentation.
(3) Acquisition
Effective December 31, 1997, the Company acquired substantially
all of the assets and liabilities of Golf Acquisition Limited
Partnership (GALP). The Company accounted for the acquisition
of GALP using the purchase method of accounting under
Accounting Principles Board (APB) Opinion No. 16, Accounting
for Business Combinations. The purchase price was
approximately $3,908,000 in cash. The Company also incurred
$156,000 in costs directly associated with the acquisition.
These costs have been capitalized as part of the purchase
price.
The operating results of this business are included in the
consolidated statement of operations from the date of
acquisition. The acquisition was accounted for as a purchase
and therefore the purchase price and the net liabilities
assumed have been allocated to goodwill.
(3) Acquisition (Continued)
The purchase price and net liabilities assumed (goodwill) was
computed as follows:
Purchase price (including
expenses), net of cash acquired $4,064,000
Plus-fair market value
assigned to net liabilities
Inventory 1,973,000
Other assets 269,000
Accounts payable (4,235,000)
Accrued liabilities (974,000)
(2,967,000)
Goodwill $7,031,000
The following unaudited pro forma information (rounded to
thousands except share and per share amounts) shows the results
of the Company's operations for the year ended February 28,
1998, as if the acquisition had occurred on March 2, 1997.
Revenues $250,888
Income from operations 10,948
Net income 4,551
Pro forma basic net income per share $ 0.43
Pro forma diluted net income per share $ 0.41
Basic weighted average shares outstanding 10,588,021
Diluted weighted average share outstanding 11,122,417
The pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the actual
results of operations had the acquisition taken place as of
March 2, 1997 or the results that may occur in the future.
Furthermore, the pro forma results do not give effect to all
costs savings or incremental costs that may occur as a result
of the integration and consolidation of the companies.
(4) Income Taxes
The components of the provision (benefit) for income taxes
shown in the consolidated statements of operations are as
follows (in thousands):
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Current-
Federal $ 2,454 $ 1,186 $ (1,655)
State 174 274 -
2,628 1,460 (1,655)
Deferred-
Federal (123) 587 (20)
State 339 14 (554)
216 601 (574)
$ 2,844 $ 2,061 $ (2,229)
The reconciliation of the federal statutory rate to the benefit
(provision) for income taxes is as follows:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Income tax provision (benefit) at 34.0% 34.0% (34.0)%
federal statutory rate
State taxes, net of federal benefit 5.0 4.8 (6.2)
39.0% 38.8% (40.2) %
(4) Income Taxes (Continued)
The components of the net deferred income taxes recognized in
the accompanying consolidated balance sheets with the
approximate income tax effect of each type of temporary
difference are as follows (in thousands):
February 28, March 1,
1998 1997
Inventories $842 $ 691
Prepaid catalog (565) (508)
Restructuring reserve - 115
State operating loss - 376
carryforward
Other nondeductible reserves 473 529
and accruals
Depreciation and (238) (474)
amortization
$512 $ 729
(5) 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 February 28,
1998) or LIBOR plus 2.25% (7.63% at February 28, 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. 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. The Company's revolving credit
facility allows for borrowings 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 February 28, 1998, the Company had approximately $43.8
million of borrowings outstanding and approximately $0.6
million of letters of credit outstanding. The Company had
approximately $9.3 million in available borrowings under this
facility at February 28, 1998. The maximum and average
outstanding loan balances during fiscal 1997 under this
facility were $47.5 million and $36.9 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,
maintaining stipulated interest coverage ratios and limitations
on capital expenditures. The Company was in compliance with
all bank covenants at February 28, 1998.
(6) Stockholders' Equity
(a) Stock Splits
On August 8, 1995, the Company's Board of Directors approved
a three-for-two stock split of the Class A common stock,
effected in the form of a stock dividend. The record date
for the stock split was August 24, 1995, and the dividend
was paid on September 1, 1995. The stock split has been
retroactively reflected in the accompanying consolidated
statements and notes for all periods presented.
A stock split for the Company's Class B common stock was not
effected at the same time as the Class A because the number
of authorized shares would have been exceeded. As a result,
Class B common stockholders had a conversion feature of 1.5-
to-1 of Class A common stock. At its annual meeting on
July 17, 1996, the stockholders authorized a three-for-two
stock split of the Class B common stock effected in the form
of a stock dividend. No additional shares were required to
be authorized due to the fact that enough Class B common
shares had already been converted to Class A common shares;
therefore, the Class B common shares on a post-split basis
did not exceed the authorized limit. Each share of the
Class B common stock is convertible into one share of Class
A common stock. The stock split has been retroactively
reflected in the accompanying consolidated statements and
notes for all periods presented.
(b) Common Stock
The rights and privileges of the common stockholders are as
follows:
Voting Rights
Holders of Class A common stock are entitled to one vote
per share. Holders of Class B common stock are entitled
to 10 votes per share. Holders of both classes are
entitled to vote together as one class on all matters,
with certain exceptions, including the election of
directors.
Dividends
Holders of Class A common stock and Class B common stock
taken together as a single class are entitled to receive
such dividends as may be declared by the Board of
Directors.
(6) Stockholders' Equity (Continued)
(c) Preferred Stock
On May 9, 1994, the Board of Directors and stockholders
voted to authorize 1,000,000 shares of preferred stock, $.01
par value. The Board of Directors has the right to
establish any right and preferences of any series of
preferred stock it so designates. At February 28, 1998 and
March 1, 1997, there were no issued or outstanding shares of
preferred stock and the Board of Directors had not
established any rights or preferences.
(d) Stock Option Plans
On September 30, 1993, the Board of Directors and
stockholders approved the 1993 Employee Stock Option Plan
(the Option Plan), which provides for the grant of options
to purchase shares of Class A common stock to employees of
the Company. An employee's right to exercise such options
is subject to vesting, generally over four to seven years or
in such percentages as defined by the Board of Directors,
and terminates 10 years from the date of grant. A total of
1,525,000 shares of Class A common stock have been reserved
for options to be granted under the Option Plan.
On May 9, 1994, the Board of Directors and stockholders
approved the 1994 Non-Qualified Stock Option Plan for Non-
Employee Directors (the Director Plan), which provides for
the grant of non-qualified options to purchase shares of
Class A common stock to non-employee directors of the
Company. A total of 90,000 shares of Class A common stock
have been reserved for options to be granted under the
Director Plan. These options begin vesting one year after
the date of grant ratably over a period of six years and
terminate 10 years from the date of grant.
(6) Stockholders' Equity (Continued)
(d) Stock Option Plans (Continued)
Activity under the Option Plan and Director Plan is
summarized as follows:
Option Plan Director Plan
Number Exercise Price Number Exercise Price
Of Shares per Share Of Shares per Share
Outstanding, February 28, 1995 898,403 $1.84- 8.50 27,000 $ 8.67
Granted 213,443 8.92- 9.58 13,500 10.00
Terminated (85,159) 1.84- 8.50 - -
Exercised (31,540) 1.84- 8.50 - -
Outstanding, March 2, 1996 995,147 1.84- 9.58 40,500 8.67-10.00
Granted 730,975 4.25- 4.88 40,000 4.00- 4.88
Terminated (582,980) 1.84- 9.58 (40,500) 8.67-10.00
Exercised (8,684) 1.84- 4.38 - -
Outstanding, March 1, 1997 1,134,458 1.84- 4.88 40,000 4.00- 4.88
Granted 158,530 5.75- 7.06 3,000 7.00- 7.06
Terminated (107,940) 1.84- 9.58 - -
Exercised (70,680) 1.84- 4.38 - -
Outstanding, February 28, 1998 1,114,388 $1.84-$7.06 43,000 $4.00-$4.88
Exercisable, February 28, 1998 399,380 $1.84-$4.38 - $ -
Set forth below is a summary of options outstanding at February
28, 1998:
(Outstanding) (Exercisable)
Remaining
Range of Weighted Average Contract Weighted Average
Exercise Prices Options Exercise Price Life Options Exercise Price
$1.84 354,814 $1.84 5.59 202,528 $1.84
4.00 - 4.88 656,824 4.36 6.92 196,852 4.34
5.75 - 7.06 145,750 6.69 9.30 - -
The Company accounts for its stock-based compensation plans
under APB Opinion No. 25, Accounting for Stock Issued to
Employees. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-
Based Compensation, which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes
a fair-value-based method of accounting for stock-based
compensation plans. The Company has adopted the disclosure-
only alternative under SFAS No. 123, which requires
disclosure of the pro forma effects on earnings and earnings
per share as if SFAS No. 123 had been adopted, as well as
certain other information. The Company has computed the pro
forma disclosures required under SFAS No. 123 for all stock
options granted as of February 28, 1998 using the Black-
Scholes option pricing model prescribed by SFAS No. 123.
(6) Stockholders' Equity (Continued)
(d) Stock Option Plans (Continued)
The assumptions used and the weighted average information
for the fiscal years ended February 28, 1998, March 1, 1997
and March 2, 1996 are as follows:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Risk-free interest rates 6.25%-6.55% 5.65%-6.70% 5.65%-6.70%
Expected dividend yield - - -
Expected lives 5 - 7.5 years 7.5 years 7.5 years
Expected volatility 85% 85% 85%
Weighted average grant-date $4.74 $2.32 $7.07
fair value of options
granted during the period
Weighted average exercise $3.88 $3.46 $5.76
price of Options outstanding
Weighted average remaining 6.81 years 7.41 years 7.92 years
contractual life of options
outstanding
Weighted average exercise $3.07 $2.98 $4.80
price of 399,380, 313,388
and 187,024 options
exercisable at February 28,
1998, March 1, 1997 and
March 2, 1996, respectively
The effect of applying SFAS No. 123 would be as follows:
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Pro forma net income (loss) $4,011 $2,294 $(3,518)
Pro forma basic net income $ .38 $ .21 $ (.35)
(loss) per share
Pro forma diluted net income $ .36 $ .20 $ (.35)
(loss) per share
Because the method prescribed by SFAS No. 123 has not been
applied to options granted prior to February 28, 1995, the
resulting pro forma compensation cost may not be
representative of that to be expected in the future years.
(e) Treasury Stock
On August 15, 1996, the Company's Board of Directors
approved a stock repurchase plan, whereby the Company may
purchase up to 500,000 shares of common stock at fair
market value to be used for future stock option programs,
investment and/or other corporate purposes. As of February
28, 1998, the Company had purchased 500,000 shares of Class
A common stock for approximately $2.5 million, of which
135,000 shares were purchased at fair market value in 1997
from a member of the Board of Directors at a cost of
approximately $0.7 million.
(f) 1997 Employee Stock Purchase Plan
In October 1997, the Company's Board of Directors approved
the 1997 Employee Stock Purchase Plan (the Purchase Plan)
whereby, the Company has reserved and may issue up to an
aggregate of 250,000 shares of its Class A common stock for
issuance in accordance with the Purchase Plan. Under the
terms of the Purchase Plan, employees who meet certain
eligibility requirements may purchase shares of the
Company's common stock at the closing price of the common
stock on the day immediately preceding the purchase date or
the nearest prior business day on which trading occurred.
There were 2,200 shares purchases under the Purchase Plan
during fiscal 1997.
(7) Accounts Receivable
Accounts receivable consist of the following (in thousands):
February 28, March 1,
1998 1997
Vendor receivables $11,806 $ 8,459
Trade receivables 1,529 1,305
Credit card receivables 2,673 1,778
Other 2,756 798
Allowance for doubtful accounts (218) (185)
$18,546 $12,155
(8) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the
following (in thousands):
February 28, March 1,
1998 1997
Prepaid catalog $2,535 $ 2,905
Other 4,371 3,557
$6,906 $ 6,462
(9) Property and Equipment
Property and equipment consist of the following (in thousands):
February 28, March 1,
1998 1997
Land $ 186 $ 186
Building 672 677
Furniture and fixtures 9,369 7,174
Equipment 7,747 5,082
Equipment under capital leases 3,569 3,470
Leasehold improvements 6,245 3,818
27,788 20,407
Less-Accumulated depreciation and 8,401 5,654
amortization
$19,387 $14,753
At February 28, 1998 and March 1, 1997, the accumulated
depreciation associated with equipment under capital leases was
approximately $0.6 million and $0.9 million, respectively.
(10) Transactions with Related Parties and Stockholders
The Company has a lease arrangement with Mystic United Realty
Trust (Mystic), for warehouse and office space at its Chelsea,
Massachusetts, facility (the Chelsea facility) under a
noncancelable lease through 2005. The chief executive
officer/principal stockholder of the Company is a trustee and
beneficiary of Mystic. Under the lease, the Company must pay
to Mystic, in the form of additional rent, all insurance, real
estate taxes, maintenance and operating costs related to the
leased premises, which approximate $0.4 million annually (see
Notes 11 and 14).
(11) Commitments and Contingencies
(a) Capital Leases
The Company leases computers and other equipment under
several lease agreements that qualify for capitalized
treatment under SFAS No. 13, Accounting for Leases. These
agreements require monthly payments including interest at
rates ranging from 5.7% to 10.8%, and expire at various
dates through January 2002.
Future minimum lease payments under capital lease
obligations at February 28, 1998 are as follows (in
thousands):
Fiscal Year Amount
1998 $ 940
1999 886
2000 313
2001 78
Total minimum lease payments 2,217
Less-Amounts representing interest 258
Obligations under capital leases 1,959
Less-Current portion of capital 777
lease obligations $1,182
(b) Operating Leases
The Company leases retail stores, warehouse and office
space, and certain machinery and equipment under lease
agreements expiring through June 2005, including related
party lease agreements (Note 10). Approximate future
minimum lease payments under operating leases as of February
28, 1998 are as follows (in thousands):
Fiscal Year Total
1998 $13,773
1999 13,001
2000 10,689
2001 8,683
2002 6,555
Thereafter 14,723
$67,424
(11) Commitments and Contingencies (Continued)
(b) Operating Leases (Continued)
Rent and related expenses charged to operations during each
of the years ended February 28, 1998, March 1, 1997 and
March 2, 1996 were approximately $12.5, $10.3 and $8.9
million, respectively.
(c) Litigation
In the ordinary course of business, the Company is party to
various types of litigation. The Company believes it has
meritorious defenses to all claims, and, in its opinion, all
litigation currently pending or threatened will not have a
material effect on the Company's financial position or
results of operations.
(12) Profit Sharing Plan
The Company maintains a profit sharing plan (the Plan) that
provides for tax deferred employee benefits under
Section 401(k) of the Internal Revenue Code. The Plan allows
employees to make contributions, a portion of which will be
matched by the Company, up to the lesser of 3% of an employee's
salary or the minimum amount allowed by law, as defined. The
Company may elect to make an additional discretionary
contribution in any Plan year. There were no discretionary
Company contributions made during the fiscal years ended
February 28, 1998, March 1, 1997 and March 2, 1996. The
Company contributions vest at a rate of 20% per year, beginning
after one year of employment. The Company has made matching
contributions to the Plan of approximately $0.2 million each of
the fiscal years ended February 28, 1998, March 1, 1997 and
March 2, 1996. The Company pays the administrative costs of
the Plan.
(13) Significant Vendor
Purchases from the Company's largest single supplier were 9.0%,
10.4% and 12.2% of total purchases for the years ended February
28, 1998, March 1, 1997 and March 2, 1996, respectively.
(14) Restructuring Charge
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 the rent and related expenses
for closing 12 retail store locations and for the consolidation
of the Company's distribution centers, as well as the severance
and related benefits for terminated retail employees. The
Company recorded the restructuring charge as follows (in
thousands):
Closing of retail stores and related cost of
severance and benefits of terminated employees $ 954
Expenses associated with consolidation of
distribution centers 443
$1,397
In fiscal 1996 and 1997, $1.1 million and $.3 million,
respectively, was charged against the reserve. As of February
28, 1998 the restructuring was complete.
(15) Selected Information by Business Segments
The Company sells its products through retail stores and its
nationally distributed mail-order catalogs. Retail store
operations consist of Woodworkers Warehouse, Post Tool and Golf
Day retail stores.
(15) Selected Information by Business Segments (Continued)
Catalog operations consist of the Trend-Lines and Golf Day
catalogs. Selected information for each of the Company's major
business segments is as follows for each of the fiscal years
ended February 28, 1998, March 1, 1997 and March 2, 1996 (in
thousands):
Fiscal Years Ended
February 28, March 1, March 2,
1998 1997 1996
Net sales-
Retail $ 171,612 $ 140,342 $ 98,515
Catalog 59,531 68,240 76,280
$231,143 $ 208,582 $ 174,795
Income (loss) from operations-
Retail $ 11,411 $ 7,591 $ 321
Catalog 8,647 8,126 8,220
General corporate expenses (9,527) (8,051) (12,435)
$ 10,531 $ 7,666 $ (3,894)
Identifiable assets-
Retail $134,791 $ 96,151 $ 76,374
Catalog 19,691 23,897 23,848
General corporate assets 970 1,006 436
$155,452 $ 121,054 $ 100,658
Depreciation and amortization-
Retail $ 1,600 $ 971 $ 419
Catalog 1,236 861 1,137
$ 2,836 $ 1,832 $ 1,556
Capital expenditures-
Retail $ 4,005 $ 2,335 $ 4,325
Catalog 3,248 1,487 1,682
$ 7,253 $ 3,822 $ 6,007
(15) Selected Information by Business Segments (Continued)
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. With the acquisition of Post Tool, Inc., the
Company has retained its Hayward, California, facility as a
distribution center for fulfillment of Post Tool, Inc. retail
stores exclusively. As a result, many of the expenses of the
Company are shared between the business segments. The
disclosures in the above table were determined after allocating
shared resources and expenses. Such allocations were based on
the judgment of the Company's management.
(16) Quarterly Results of Operations (Unaudited)
The following summarized unaudited results of operations for
fiscal 1997 and 1996 have been accounted for using generally
accepted accounting principles for interim reporting purposes
and include adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for the fair
presentation of results for the interim periods shown below.
(In thousands, except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal 1997-
Net sales $ 57,089 $ 50,819 $ 52,357 $ 70,878
Gross profit 18,932 16,413 16,216 22,453
Net income 413 423 855 2,757
Basic net income per $ .04 $ .04 $ .08 $ .26
share
Diluted net income per $ .04 $ .04 $ .08 $ .24
share
Basic weighted average
common shares outstanding 10,586 10,568 10,589 10,609
Diluted weighted average
common shares outstanding 11,038 11,120 11,175 11,130
Fiscal 1996-
Net sales $49,311 $46,827 $ 49,100 $63,344
Gross profit 16,416 15,223 16,017 21,055
Net income 184 225 640 2,201
Basic net income per share $ .02 $ .02 $ .06 $ .20
Diluted net income per $ .02 $ .02 $ .06 $ .20
share
Basic weighted average
common shares outstanding 11,048 11,044 11,014 10,788
Diluted weighted average
common shares outstanding 11,297 11,298 11,305 11,170
Schedule II
TREND-LINES, INC. AND SUBSIDIARY
Valuation and Qualifying Accounts
(In Thousands)
Balance, Charged to Balance,
Beginning Costs and End of
of Period Expenses Deductions Period
Allowance for Doubtful
Accounts:
March 2, 1996 $ 93 $ - $ - $ 93
March 1, 1997 $ 93 $ 92 $ - $185
February 28, 1998 $ 185 $ 89 $ 56 $218