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
For fiscal year ended February 27, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to ____________.
Commission File Number: 0-24390
Trend-Lines, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2722797
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
135 American Legion Highway, Revere, Massachusetts 02151
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(Address of Principal Executive Offices) (Zip Code)
(781) 853-0900
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(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. Yes X No ___
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, 1999 was
$15,170,875 based on the closing price of $2.625 on that date on the Nasdaq
National Market. As of April 30, 1999, 5,969,553 shares of the registrant's
Class A Common Stock, $.01 par value, were outstanding, and 4,681,082 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.
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 at February 27, 1999, operated 121 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 at February 27,
1999, operated 28 Post Tool stores. The Company purchased the Golf Day name and
mailing list in 1989, mailed its first Golf Day catalog in 1990 and opened a
Golf Day outlet store in its distribution center in January 1991. In January
1998, the Company further expanded its golf retail operations by acquiring 13
Nevada Bob's franchised stores located in New England, which were immediately
converted to Golf Day stores. At February 27, 1999, the Company operated 82 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 4 Golf
Day stores located in California. The Company's 28 Post Tool stores are located
in California except for 2 stores located in Nevada.
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
According to the National Golf Foundation's 1998 report on golf
participation in the United States, the number of Americans playing golf has
increased 33% to 26.5 million since 1986. The number of golf courses in the U.S.
has increased 24%, to 16,365 courses over the last 13 years. In 1998 golfers
spent $2.2 billion on golf clubs alone and $5.0 billion on other equipment and
related merchandise. The game's growing popularity among juniors has been fueled
by Tiger Woods and women currently represent the fastest growing golf segment.
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 enhance the Company's
position and to maximize the Company's future growth as a leading specialty
retailer of power and hand tools and accessories, as well as golf equipment. The
key elements of the Company's business strategy are as follows:
o Expansion of retail store operations. The Company plans to continue to
expand its retail store operations by opening approximately ten to
fifteen stores in fiscal year 1999. 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.
o 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.
o 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 operating efficiencies.
The Company also has a distribution center located in Hayward,
California, for its Post Tool operation, which has been integrated into
the Company's management information systems.
o 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.
o 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.
o 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.
o Customer convenience. The Company strives to maximize convenience to its
retail store customers by providing ample parking and fast in-and-out
service.
Expansion Strategy
At February 27, 1999, the Company operated 121 Woodworkers Warehouse and
82 Golf Day stores in the Northeast and Mid-Atlantic and 4 in California, as
well as 26 Post Tool stores in California and 2 in Nevada. In fiscal 1998, the
Company opened 22 tool stores and 14 golf stores, while closing 6 tool stores
and 3 golf stores. The Company plans to open approximately 10 to 15 retail
stores in fiscal 1999.
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 tool store (exclusive of distribution center
inventory), including fixtures, equipment and nominal pre-opening expenses,
averages approximately $380,000, including $315,000 of inventory. The cost of
opening a new golf store is approximately $510,000, including $375,000 of
inventory. 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,
Home Quarters, and Lowes.
The Company's 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 Adams, Callaway, Cleveland, Cobra, Etonic, Foot-Joy, Hogan,
MacGregor, Nike, Olimar, 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
those 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 six days and two nights per week, except for certain holidays.
At February 27, 1999, the Company operated 121 Woodworkers Warehouse
stores, 28 Post Tool stores and 82 Golf Day stores. Of the Woodworkers Warehouse
stores, 33 were located in New York, 24 in Pennsylvania, 17 in Massachusetts, 14
in New Jersey, 10 in New Hampshire, 9 in Connecticut, 7 in Maine, 3 in Delaware,
2 in Rhode Island, and 2 in Vermont. Of the Post Tool stores, 26 are located in
California and 2 in Nevada. Of the 82 Golf Day stores, 20 are located in
Massachusetts, 16 in New York, 13 in New Jersey, 8 in Connecticut, 8 in
Pennsylvania, 6 in New Hampshire, 4 in Maine, 4 in California, 2 in Delaware,
and 1 in Rhode Island.
The Company's Woodworkers Warehouse and Golf Day retail store operations
are currently divided into regional districts, with each district containing
from 18 to 22 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 1998, the Company closed 6
tool stores as well as 3 golf 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. All new employees attend the Company's in-house training program,
Trend-Lines University. Skills are further enhanced through on-the-job training
combined with the use of Company-developed manuals. 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 11.1 million copies
of its Trend-Lines catalog and approximately 11.3 million copies of its Golf Day
catalog during fiscal year 1998. The Trend-Lines and Golf Day catalog mailing
lists total approximately 1.1 million and 890,000 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 1998, one of the Company's vendors accounted for approximately 11% of the
Company's purchases. The Company believes its vendor relationships are
satisfactory.
In fiscal 1998, approximately 11% 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, just outside of Boston. The 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 leases a 51,000 square foot warehouse facility in
Chelsea, Massachusetts, which is used for additional storage and processing of
product returns. In addition, the Company leases a 48,000 square foot
distribution center in Hayward, California for its Post Tool stores.
The geographic concentration of its stores facilitates 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 warehouse picking for the weekly store replenishment
considers store sales through the close of business of the previous day.
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.
Competition
The Company's tool and golf businesses are highly competitive and compete
with a number of other retailers, mail order catalogs, internet websites 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 Trademark), Woodworkers Warehouse(Registered
Trademark), Trend-Lines(Registered Trademark), Trend-Lines Woodworking Tools &
Supplies(Registered Trademark), Golf Express(Registered Trademark),
Carb-Tech(Registered Trademark), Post Tool(Registered Trademark),
Reliant(Trademark), Vulcan(Registered Trademark) and Honors(Registered
Trademark) 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 27, 1999, the Company employed 1,712 persons, of
whom 1,098 were full time and 614 were part time. In January, 1999, there were
twelve employees at the Company's Hayward distribution center that voted to be
represented by a labor union in California. The Company is currently negotiating
a labor contract with the labor union. The Company considers its employee
relations to be satisfactory with its employees.
Executive Officers
Name Age Position
- ---- --- --------
Stanley D. Black 62 Chairman of the Board of Directors and
Chief Executive Officer
Richard Griner 55 President, Chief Operating Officer and Director
Karl P. Sniady 46 Executive Vice President, Finance and Administration,
Chief Financial Officer and Director
Walter Spokowski 42 Executive Vice President, Merchandising
Richard A. Binder 54 Vice President, Legal and General Counsel
Frank P. Bussone 53 Vice President, Marketing
Ronald L. Franklin 53 Vice President, Finance, Treasurer, and Director
Kathleen Harris 40 Vice President, Human Resources
John A. McGregor 50 Vice President, Golf Day Merchandising
Jayne Pendergast 43 Vice President, Information Systems
Norman W. Zagorsky 61 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.
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.
Frank P. Bussone has been Vice President, Marketing since January 1995.
Mr. Bussone served as Director of Marketing of the Company from January 1988
until January 1995.
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.
John A. McGregor has been Vice President, Golf Day Merchandising since
August 1993.
Jayne Pendergast has been Vice President, Information Systems since June,
1998. From April, 1997 to May, 1998, Ms. Pendergast was Director, Applications
Development for Intrepid Systems. From 1993 to 1997, she was Director, Systems
Development for Casual Corner.
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 with 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 and processing of product returns.
At February 27, 1999, the Company operated 231 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. At February 27, 1999, the
Company's store leases, assuming the Company does not exercise its lease renewal
options, were scheduled to expire as follows:
Year Lease Number of Store Leases
Terms Expire Expiring
1999-2001 81
2002-2004 123
2005-2006 13
2007 and later 12
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 27, 1999
First Quarter $9.13 $4.81
Second Quarter $5.88 $2.38
Third Quarter $3.13 $1.25
Fourth Quarter $5.00 $1.75
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
At April 30, 1999 the last reported sales price of the Class A Common
Stock on the Nasdaq National Market was $2.625 per share. At April 30, 1999
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 last five fiscal years.
Fiscal Years Ended
------------------
(In thousands, except per share data)
February 27, February 28, March 1, March 2, February 28,
1999 1998 1997 1996 (1) 1995
---- ---- ---- -------- ----
STATEMENTS OF OPERATIONS DATA (2):
Net sales $ 262,550 $231,143 $208,582 $ 174,795 $128,332
Cost of sales 181,577 157,129 139,871 117,447 79,442
--------- -------- -------- --------- --------
Gross profit 80,973 74,014 68,711 57,348 48,890
Selling, general and administrative expenses 86,393 63,483 61,045 59,845 40,096
Restructuring charge -- -- -- 1,397 --
--------- -------- -------- --------- --------
Income (loss) from operations (5,420) 10,531 7,666 (3,894) 8,794
Interest expense, net 5,580 3,239 2,355 1,654 373
--------- -------- -------- --------- --------
Income (loss) before provision (benefit)
for income taxes (11,000) 7,292 5,311 (5,548) 8,421
Provision (benefit) for income taxes (3,590) 2,844 2,061 (2,229) 2,990
--------- -------- -------- --------- --------
Net income (loss) (7,410) $ 4,448 $ 3,250 ($ 3,319) $ 5,431
========= ======== ======== ========= ========
Pro forma net income (loss) (3) $ 5,051
========
Basic net income (loss) per share (4) ($ 0.70) $ 0.42 $ 0.30 ($ 0.33) $ 0.59
Diluted net income (loss) per share (4) ($ 0.70) $ 0.40 $ 0.29 ($ 0.33) $ 0.56
========= ======== ======== ========= ========
Basic weighted average of shares
outstanding (4) 10,648 10,588 10,973 10,163 8,541
Diluted weighted average number of shares
outstanding (4) 10,648 11,122 11,255 10,163 8,966
STORE OPERATING DATA:
Net store sales (000's) $ 217,031 $171,612 $140,342 $ 98,515 $ 52,578
Percentage increase (decrease) in
comparable net store sales (5) 1.3% 9.8% 19.6% (0.3%) 1.4%
Number of stores at end of period
Tool stores 149 133 119 111 82 (6)
Golf stores 82 71 (7) 40 30 10
CATALOG OPERATING DATA:
Net catalog sales $ 45,519 $ 59,531 $ 68,240 $ 76,280 $ 75,754
February 27, February 28, March 1, March 2, February 28,
1999 1998 1997 1996 (1) 1995
---- ---- ---- -------- ----
BALANCE SHEET DATA:
Working capital $ 11,712 $ 21,774 $ 30,060 $ 31,406 $ 17,224
Total assets 192,938 155,452 121,054 100,658 66,539
Total debt 81,851 45,760 27,757 21,292 12,071
Stockholders' equity 40,442 47,751 43,406 42,288 25,854
(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 taxes for operations through June 28, 1994, except
for certain state income taxes imposed at the corporate level.
(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.
(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 6
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 tool 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
In recent years, the Company's net sales have been primarily attributable
to its retail store business. During fiscal 1998, the Company continued the
expansion of its retail store operations, opening 36 tool and golf stores. The
Company expects that the expansion of its retail store operations will generate
the Company's future growth. At February 27, 1999, the Company operated 149
Woodworkers Warehouse and Post Tool stores and 82 Golf Day stores.
The following table presents net sales and gross margin data of the
Company for the periods indicated:
Fiscal Years Ended
February 27, February 28, March 1,
1999 1998 1997
---- ---- ----
(In thousands, except percentage data)
Net Sales:
Retail
Tools $148,444 $133,000 $115,183
Golf 68,587 38,612 25,158
Catalog
Tools 27,945 34,451 43,283
Golf 17,574 25,080 24,958
------ ------ ------
Total $262,550 $231,143 $208,582
======== ======== ========
Gross Margin 30.8% 32.0% 32.9%
==== ==== ====
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 stores. 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 1998,
the Company experienced a 1.2% decrease in its gross profit as a percentage of
net sales as compared to fiscal 1997, primarily as a result the Company's
changing sales mix: retail sales increased to 83% of total sales as compared to
74% of 1997 total sales. With respect to both catalog and retail store
operations, sales of golf products have yielded higher gross profit percentages
than sales of tools.
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 27, February 28, March 1,
1999 1998 1997
---- ---- ----
Net Sales 100.0 % 100.0 % 100.0 %
Cost of Sales 69.2 68.0 67.1
------------ ------------ ----------
Gross Profit 30.8 32.0 32.9
Selling, General and
Administrative Expenses 32.9 27.4 29.2
------------ ------------ ----------
(Loss) Income From Operations (2.1) 4.6 3.7
Interest Expense, net 2.1 1.4 1.1
------------ ------------ ----------
(Loss) Income Before Income Taxes (4.2)% 3.2 % 2.6 %
============ ============ ==========
Fiscal 1998 versus Fiscal 1997
Net sales for fiscal 1998 increased by $31.4 million, or 13.6%, from
$231.1 million for fiscal 1997 to $262.5 million. Net retail sales for fiscal
1998 increased $45.4 million or 26.5% from $171.6 million for fiscal 1997 to
$217.0 million. However, net catalog sales for fiscal 1998 decreased $14.0
million or 23.5%, from $59.5 million for the fiscal 1997 to $45.5 million for
fiscal 1998. The decrease in net catalog sales was attributable to the Company's
opening of retail stores in areas only previously served by its catalog as well
as to distribution difficulties experienced during the first half of fiscal
1998, which were a result of problems encountered during the implementation of a
warehouse management system. The Company plans to continue its practice of not
mailing catalogs to areas where it operates retail stores. The revenue growth of
retail stores is attributable to the maturation and expansion of the Company's
retail store base. The store base expanded by 13.2% from 204 locations at the
end of fiscal 1997 to 231 locations at the end of fiscal 1998. For fiscal 1998,
comparable net store sales for tool and golf stores, increased by .5% and 4.3%,
respectively, as compared to fiscal 1997. Comparable net sales for all stores
increased by 1.3% for fiscal 1998.
Following is a summary of retail store growth.
Fiscal Years Ended
-----------------------------------
February 27, February 28, March 1,
1999 1998 1997
Stores operated at the beginning of
the fiscal year
Tools 133 119 111
Golf 71 40 30
-----------------------------------
Total 204 159 141
Stores opened during the fiscal year
Tools 22 18 15
Golf 14 33 11
-----------------------------------
Total 36 51 26
Stores closed during the fiscal year
Tools 6 4 7
Golf 3 2 1
-----------------------------------
Total 9 6 8
Stores operated at the end of the
fiscal year
Tools 149 133 119
Golf 82 71 40
-----------------------------------
Total 231 204 159
===================================
Gross profit for fiscal 1998 increased $7.0 million, or 9.4%, from $74.0
million for fiscal 1997 to $81.0 million for fiscal 1998. As a percentage of net
sales, gross profit decreased 1.2% from 32.0% of net sales for fiscal 1997 to
30.8% for fiscal 1998. The decrease in gross profit as a percentage of net sales
was primarily due to the Company's changing sales mix, given the percentage
increase in retail store sales. Since the catalog business has higher gross
margins than retail store operations, gross margins will decrease as catalog
sales decrease.
Selling, general and administrative expenses for fiscal 1998 increased
$22.9 million, or 36.1%, from $63.5 million for fiscal 1997 to $86.4 million for
fiscal 1998. As a percentage of net sales, selling, general and administrative
expenses increased 5.4% from 27.4% of net sales in fiscal 1997 to 32.9% of net
sales in fiscal 1998. The dollar increases in selling, general and
administrative expenses are primarily related to the Company's continuing retail
expansion to 231 locations, which is a 13% increase in the number of stores
operated, as well as due to distribution difficulties experienced during the
first half of fiscal 1998, which were a result of problems encountered during
the implementation of a warehouse management system. The increase in selling,
general and administrative expenses as a percentage of net sales was primarily
attributable to lower than anticipated sales, coupled with increases in selling
and administrative expenses related to new stores and resolution of warehouse
management implementation issues.
Interest expense, net of interest income, for fiscal 1998 increased by
$2.3 million from $3.2 million in fiscal 1997 to $5.6 million in fiscal 1998.
The increase in interest expense was attributable to the increase in the amount
outstanding under the Company's bank credit facility.
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
$31.2 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 adopting a more
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
20.4% 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. 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 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 expense 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 27.4% in fiscal 1997 from 29.2% 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 the borrowing for the acquisition of Golf Acquisition Limited
Partnership and related bank debt interest rate.
Liquidity and Capital Resources
The Company incurred operating losses during fiscal 1998 and used funds
provided by its bank credit facility to meet its cash operating needs. The bank
credit facility agreement contains certain financial covenants, including, but
not limited to, maintaining minimum levels of tangible net worth and interest
coverage ratios and limitations on capital expenditures. At February 27, 1999,
the Company was in compliance with all financial covenants.
Pursuant to an amendment with its bank dated as of February 23, 1999, the
bank amended the credit facility with respect to the commitment level of the
facility as well as financial covenants and advance rates for future periods.
The commitment level of the credit facility was increased from $80 million to
$100 million. The modified covenants require the Company to maintain an interest
coverage ratio of 2.00 : 1.00 for the second half of fiscal 1998, 2.00 : 1.00
for the nine months ended May 31, 1999, and 2.00 : 1.00, on a rolling 12 month
basis for each quarter, thereafter. The adjusted tangible net worth as of the
last day of fourth fiscal quarter of 1998 and first fiscal quarter of 1999 must
be at least $40.0 million, the second and third fiscal quarter of 1999 must be
at least $41.0 million, and for the fourth fiscal quarter 1999 and each fiscal
quarter thereafter, adjusted tangible net worth must be at least $42.0 million.
Capital expenditures may not exceed $6.75 million for fiscal 1998 and $6.0
million for any fiscal year thereafter.
The Company believes that projected cash flows from operations in
combination with current available resources are sufficient to meet working
capital needs, such as store openings and debt payments. Achievement of
projected cash flows from operations, however will be dependent upon the
Company's attainment of sales, gross profit, expense and trade support levels
that are consistent with its financial plans. Such operating performance will be
subject to financial, economic and other factors affecting the industry and
operations of the Company, including factors beyond its control, and there can
be no assurance that the Company's plans will be achieved. In addition, the
Company borrows funds on a variable rate basis and continued compliance with
loan covenants is partially dependent on relative interest rate stability. If
projected cash flows from operations are not realized, or if there are
significant increases in interest rates, then the Company may have to explore
various available alternatives, including obtaining further modification to its
existing lending arrangements or attempting to locate additional sources of
financing.
The Company's working capital decreased by $10.1 million, from $21.8
million as of February 28, 1998 to $11.7 million as of February 27, 1999. The
decrease resulted primarily from an increase in the net borrowings under the
Company's bank credit facility of $36.4 million, which was offset by a $29.1
million increase in inventory.
During fiscal 1998, the cash used in operating activities was
approximately $29.3 million. The primary uses of the cash were for a net loss of
$7.4 million, a $29.0 million increase in inventories, and a $1.1 million
decrease in deferred income taxes, all of which was offset by a $8.8 million
increase in accounts payable.
The net cash used in investing activities was approximately $6.4 million.
The main use of the cash was for the purchase of property and equipment required
for the Company's retail expansion.
The net cash provided by financing activities was approximately $35.6
million, primarily attributable to the increase in borrowings on the Company's
bank credit facility of $36.4 million.
During fiscal 1996, the Company entered into a secured line-of-credit
agreement with a bank (the "credit facility") that, as amended during fiscal
1998, expires on December 31, 2001. The credit facility bears interest at the
bank's reference rate plus .75% (9.25% at February 27, 1999) or LIBOR plus 2.25%
(7.18% at February 27, 1999). If for any 12 month rolling period the fixed
charges ratio exceeds certain limits, as defined, the bank's interest rate on
the credit facility is decreased by .25% for the period immediately following
such rolling period. A commitment fee of .375% per year of the average unused
commitment amount, as defined, is payable monthly. The credit facility allows
for borrowing up to $100 million based on a percentage of inventory (the
"advance rate"). Borrowings include 50% of the amounts reserved for outstanding
letters of credit.
At February 27, 1999, the Company had approximately $80.2 million of
borrowings outstanding and approximately $.4 million of letters of credit
outstanding. The Company had approximately $1.0 million in available borrowings
under this facility at February 27, 1999. The bank has a security interest in
substantially all assets of the Company. The bank credit facility agreement
contains certain financial covenants, including, but not limited to, maintaining
minimum levels of tangible net worth, and interest coverage ratios and
limitations on capital expenditures.
The Company anticipates that in fiscal 1999, 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 tool store
(exclusive of distribution center inventory) averages approximately $380,000, of
which $315,000 consists of inventory. The cost of opening a new golf store is
approximately $510,000, of which $375,000 consists of inventory. In each case, a
portion of the inventory investment is financed with trade credit. The Company
opened 22 new tool stores and 14 new golf stores, and closed 6 tool stores and 3
golf stores in fiscal 1998. For fiscal 1999, the Company currently plans to open
ten to fifteen stores.
YEAR 2000
Like many other companies, the Year 2000 computer issue creates risk for
the Company. If both information technology systems and imbedded technology do
not correctly recognize date information on and subsequent to January 1, 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, which is planned to be completed by September, 1999.
A review of embedded technology used in equipment provided by outside vendors
with the manufacturers of such equipment, is planned to be completed by July,
1999. The Company does not anticipate difficulty in resolving issues related to
embedded technology in the equipment provided by other manufacturers. The
Company is also inquiring of important third party vendors regarding their
readiness, and this review is planned to be completed by July, 1999. 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, Year 2000 compliant applications to be supplied
by outside vendors at a cost estimated at approximately $2.0 million. This new
software is planned to be installed, tested and fully functional by August,
1999. Funds for this expenditure will be provided by either operating activities
or the Company's revolving credit facility.
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 it will be Year 2000 compliant and that
future costs relating to the Year 2000 issue will not have a material adverse
impact on the Company's consolidated financial position, results of operations
or cash flows.
Since the Company relies on third-party suppliers for many systems,
products and services including merchandise, telecommunications and call center
support, the Company could be adversely affected if these suppliers do not make
necessary changes to their own systems and products successfully and in a timely
manner, and there can be no assurance that such third parties will provide
complete or accurate Year 2000 readiness disclosures.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. Nevertheless, since it is not
possible to anticipate all possible future outcomes, especially when third
parties are involved, there could be circumstances in which the Company could be
adversely affected. For example, the Company could encounter problems in taking
customer orders, shipping products, invoicing customers or collecting payments.
The amount of potential lost revenue or related consequences as a result of
these unlikely contingencies has not been estimated.
The Company expects to evaluate the status of its contingency plans after
it has completed the remediation phase of the Y2K project for its information
systems. In addressing issues not resolved or contemplated for its systems, the
Company plans to allocate internal resources and may retain dedicated
consultants and vendor representatives to be available to take corrective
action, if necessary. However, the Company will adjust and adopt additional
plans if situations arise requiring modifications to existing contingency plans
or new contingency plans, as required.
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its net sales or results of operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements included in this report that do not relate to present or
historical conditions are "forward-looking statements" within the meaning of the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Additional oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents other than
this report that are filed with the Securities and Exchange Commission. Such
forward-looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements in this report and
elsewhere may include, without limitation, statements relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy of
resources and are intended to be made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Words such as "believes,"
"forecasts," "intends," "possible," "expects," "estimates," "anticipates," or
"plans" and similar expressions are intended to identify forward-looking
statements. Investors are cautioned that such forward-looking statements involve
risks and uncertainties including, without limitation, the following: (i) the
Company's plans, strategies, objectives, expectations and intentions are subject
to change at any time at the discretion of the Company; (ii) increased
competition, a change in the retail business in the tool and/or golf sectors or
a change in the Company's merchandise mix; (iii) a change in the Company's
advertising, pricing policies or its net product costs after all discounts and
incentives; (iv) the Company's plans and results of operations will be affected
by the Company's ability to manage its growth and inventory; (v) the Company's
ability to achieve its plans and strategies of growth will be dependent on
maintaining adequate bank and other financing; (vi) the timing and effectiveness
of programs dealing with the Year 2000 issue and the Company's warehouse
management system; and (vii) 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 27, 1999.
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 27, 1999 and
February 28, 1998..................................................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended
February 27, 1999, February 28, 1998 and March 1, 1997................ F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended February 27, 1999, February 28, 1998 and March 1, 1997.......... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 27, 1999, February 28, 1998, and March 1, 1997............... 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 19, D
1994 between Post Tool, Inc. and the Registrant.
** 10.15 Asset Purchase Agreement dated as of December 31, E
1997 between Golf Acquisitions Limited Partnership
and the Registrant
10.16 Amended and Restated Loan and Security Filed
Agreement dated February 23, 1999 herewith
** 21.01 Subsidiaries of the Registrant. F
23.01 Consent of Arthur Andersen LLP. Filed
herewith
27.00 Financial Data Schedule Filed herewith only
in electronic form
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 10.15 to the Company's annual report
on Form 10-K for the fiscal year ended February 28, 1998.
F 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
None
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 26, 1999 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 Executive Officer May 26, 1999
- ---------------------
Stanley D. Black
/s/ KARL P. SNIADY Director and Executive Vice President, May 26, 1999
- --------------------- Finance and Administration (Principal
Karl P. Sniady Financial and Accounting Officer)
/s/ RONALD L. FRANKLIN Director May 26, 1999
- ---------------------
Ronald L. Franklin
/s/ RICHARD GRINER President, Chief Operating Officer May 26, 1999
- --------------------- and Director
Richard Griner
s/ RICHARD A. MANDELL Director May 26, 1999
- ---------------------
Richard A. Mandell
/s/ IRWIN WINTER Director May 26, 1999
- ---------------------
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 27, 1999 and February 28,1998 F-3
Consolidated Statements of Operations for the Fiscal Years Ended
February 27,1999, February 28,1998 and March 1, 1997 F-4
Consolidated Statements of Stockholder's Equity for the Fiscal Years
Ended February 27,1999, February 28,1998, and March 1, 1997 F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 27,1999, February 28,1999, and March 1, 1997 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 27, 1999 and
February 28, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended February 27, 1999,
February 28, 1998, and March 1, 1997. 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 27, 1999, and February 28, 1998, and the results of
their operations and their cash flows for the years ended February 27, 1999,
February 28, 1998 and March 1, 1997, 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.
/S/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 23, 1999
TREND-LINES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
February 27, February 28,
1999 1998
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 540 $ 669
Accounts receivable, net 22,270 18,546
Inventories 131,219 102,172
Prepaid expenses and other current assets 9,508 6,906
--------- ---------
Total current assets 163,537 128,293
PROPERTY AND EQUIPMENT, NET 21,413 19,387
INTANGIBLE ASSETS, NET 6,621 6,973
OTHER ASSETS 1,367 799
--------- ---------
$ 192,938 $ 155,452
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank credit facility $ 80,152 $ 43,801
Current portion of capital lease obligations 1,028 777
Accounts payable 62,589 53,830
Accrued expenses 8,056 8,111
--------- ---------
Total current liabilities 151,825 106,519
--------- ---------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 671 1,182
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A --
Authorized - 20,000,000 shares
Issued - 6,469,553 and 6,385,178 shares at
February 27, 1999 and February 28, 1998, respectively 64 64
Class B --
Authorized - 5,000,000 shares
Issued and outstanding - 4,681,082 and 4,738,066 shares at
February 27, 1999 and February 28, 1998, respectively 47 47
Additional paid-in capital 41,625 41,524
Retained earnings 1,166 8,576
Less: 500,000 Class A shares held in treasury at February 27, 1999
and February 28, 1998, at cost (2,460) (2,460)
--------- ---------
Total stockholders' equity 40,442 47,751
--------- ---------
$ 192,938 $ 155,452
========= =========
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 27, February 28, March 1,
1999 1998 1997
------------ ----------- -----------
NET SALES $ 262,550 $ 231,143 $ 208,582
COST OF SALES 181,577 157,129 139,871
------------ ----------- -----------
Gross Profit 80,973 74,014 68,711
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 86,393 63,483 61,045
------------ ----------- -----------
(Loss) Income from operations (5,420) 10,531 7,666
INTEREST EXPENSE, NET 5,580 3,239 2,355
------------ ----------- -----------
(Loss) Income before (benefit) provision for income taxes (11,000) 7,292 5,311
(BENEFIT) PROVISION FOR INCOME TAXES (3,590) 2,844 2,061
------------ ----------- -----------
Net (Loss) income $ (7,410) $ 4,448 $ 3,250
============ =========== ===========
BASIC NET (LOSS) INCOME PER SHARE $ (0.70) $ 0.42 $ 0.30
============ =========== ===========
DILUTED NET (LOSS) INCOME PER SHARE $ (0.70) $ 0.40 $ 0.29
============ =========== ===========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 10,648,366 10,588,021 10,973,416
============ =========== ===========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) 10,648,366 11,122,417 11,255,362
============ =========== ===========
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 AND PER 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, MARCH 2, 1996 6,252,965 $ 62 4,790,911 $ 48 $41,300 $ 878 -- $ -- $ 42,288
Conversion of Class B shares to
Class A shares 40,885 1 (40,885) (1) -- -- -- -- --
Proceeds from exercise of stock
options 8,684 -- -- -- 18 -- -- -- 18
Treasury stock purchase -- -- -- -- -- -- 440,000 (2,150) (2,150)
Net income -- -- -- -- -- 3,250 -- -- 3,250
--------- ----- ---------- ----- ------- ------- ------- ------- --------
BALANCE, MARCH 1, 1997 6,302,534 $ 63 4,750,026 $ 47 $41,318 $ 4,128 440,000 $(2,150) $ 43,406
Conversion of Class B shares to
Class A shares 11,960 -- (11,960) -- -- -- -- -- --
Proceeds from exercise of stock
options 70,684 1 -- -- 206 -- -- -- 207
Treasury stock purchase -- -- -- -- -- -- 60,000 (310) (310)
Net income -- -- -- -- -- 4,448 -- -- 4,448
--------- ----- ---------- ----- ------- ------- ------- ------- --------
BALANCE, FEBRUARY 28, 1998 6,385,178 $ 64 4,738,066 $ 47 $41,524 $ 8,576 500,000 $(2,460) $ 47,751
Conversion of Class B shares to
Class A shares 56,984 -- (56,984) -- -- -- -- -- --
Proceeds from exercise of stock
options 27,391 -- -- -- 101 -- -- -- 101
Net loss -- -- -- -- -- (7,410) -- -- (7,410)
BALANCE, FEBRUARY 27, 1999 6,469,553 $ 64 4,681,082 $ 47 $41,625 $ 1,166 500,000 $(2,460) $ 40,442
========= ===== ========== ===== ======= ======= ======= ======= ========
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 27, February 28, March 1,
1999 1998 1997
----------- ----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (7,410) $ 4,448 $ 3,250
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Depreciation and amortization 4,738 2,836 1,832
Deferred income taxes (1,075) 216 601
Accounts receivable (3,724) (6,391) (3,836)
Inventories (29,047) (14,296) (17,024)
Prepaid expenses and other current assets (1,643) (405) 3,113
Accounts payable 8,759 5,695 13,424
Accrued expenses 62 904 (912)
-------- -------- --------
Net cash (used in) provided by operating activities (29,340) (6,993) 448
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,830) (7,188) (3,500)
Proceeds from sale of property and equipment 16 73 70
Acquisition, net of cash acquired -- (4,064) --
Decrease in other assets (568) -- (459)
-------- -------- --------
Net cash used in investing activities (6,382) (11,179) (3,889)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank credit facilities 36,351 18,605 6,713
Net payments on capital lease obligations (859) (667) (570)
Proceeds from exercise of stock options 101 207 18
Purchases of treasury stock -- (310) (2,150)
-------- -------- --------
Net cash provided by financing activities 35,593 17,835 4,011
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (129) (337) 570
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 669 1,006 436
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 540 $ 669 $ 1,006
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 5,489 $ 3,212 $ 2,650
======== ======== ========
Income taxes $ 1,912 $ 2,418 $ 176
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital lease obligations $ 598 $ 65 $ 322
======== ======== ========
Summary of entity acquired -
Fair value of assets acquired -- 9,273 --
-------- -------- --------
Liabilities assumed -- 5,209 --
-------- -------- --------
Cash paid, net of cash acquired $ -- $ 4,064 $ --
======== ======== ========
SEE 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.
(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
The Company's fiscal year-end is the Saturday closest to the last day of
February. Fiscal year 1998 ended on February 27, 1999, Fiscal year 1997
ended on February 28, 1998 and Fiscal year 1996 ended on March 1, 1997.
For interim reporting purposes, the Company closes its books on the
Saturday of the thirteenth week of the fiscal quarter.
(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.
(f) Inventories
The Company values inventories, which consist of merchandise held for
resale, at the lower of cost (weighted average) or market.
(g) Prepaid Catalog Expenses
The Company has adopted the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 93-7, Reporting on
Advertising Costs, and capitalizes direct costs relating to the production
and distribution of its mail-order catalogs. These costs are charged to
operations over the period that revenues are derived from the mailings
which is predominately 1 year or less from the date of mailing.
(h) Store Preopening Costs
The Company expenses, as incurred, all preopening costs related to each
new retail store location, in accordance with (SOP) 98-5, Reporting on
Cost of Start-up Activities.
(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.
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
Leashold 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's accounts receivable credit risk is not limited
to any particular customer. The Company maintains an allowance for
potential credit losses.
(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 from credit card fraud under these agreements. 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.
(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 weighted average number of common stock outstanding and
the dilutive effect of common stock equivalents such as stock options and
warrants. The Company adopted SFAS 128 in the fourth quarter of fiscal
1997. All prior period per share amounts have been restated to comply with
SFAS 128.
Potentially dilutive securities include outstanding options under the
Company's stock option plan. For the fiscal year ended February 27,1999,
the diluted earnings per share calculation has been computed using the
basic weighted average shares outstanding, as the effect of options is
anti-dilutive. The number of potentially dilutive shares excluded from the
earnings per share calculation was 198,094 for fiscal year ended February
27, 1999. Below is a summary of the shares used in calculating basic and
diluted earnings per share:
Fiscal Years Ended
February 27, February 28, March 1,
1999 1998 1997
Weighted average number of shares of
common stock outstanding 10,648,366 10,588,021 10,973,416
Dilutive stock options 0 534,396 281,946
---------- ---------- ----------
Shares used in calculating diluted
earnings per share 10,648,366 11,122,417 11,255,362
========== ========== ==========
(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 that 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 commensurate with the risk involved. At February 27, 1999, 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 $351,000 of goodwill amortization during
fiscal 1998 and $35,158 in fiscal 1997. The Company continually evaluates
whether events and circumstances have occurred that indicate that the
remaining estimated useful life of goodwill may not be recoverable. When
factors indicate that goodwill should be evaluated for possible
impairment, the Company uses estimates of undiscounted operating cash flow
over the remaining life of the goodwill to measure whether goodwill is
recoverable. As of February 27, 1999, 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) for
approximately $4.0 million in cash. The Company accounted for the
acquisition of GALP using the purchase method of accounting and the
purchase price was allocated to the net liabilities assumed based upon
their estimated fair market values. The operating results of this business
are included in the consolidated statements of operations from the date of
acquisition.
The excess purchase price over 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 cost savings or incremental costs that may occur as a result of the
integration and consolidated of the companies.
(4) INCOME TAXES
The components of the (benefit) provision for income taxes shown in the
consolidated statements of operations are as follows (in thousands):
Fiscal Years Ended
February 27, 1999 February 28, 1998 March 1, 1997
Current
Federal ($3,400) $2,454 $1,186
State 885 174 274
----------------- ----------------- -------------
(2,515) 2,628 1,460
----------------- ----------------- -------------
Deferred
Federal 173 (123) 587
State (1,248) 339 14
----------------- ----------------- -------------
(1,075) 216 601
----------------- ----------------- -------------
($3,590) $2,844 $2,061
================= ================= =============
The reconciliation of the federal statutory rate to the (benefit)
provision for income taxes is as follows:
Fiscal Years Ended
February 27, 1999 February 28, 1998 March 1, 1997
Income tax (benefit) provision
at federal statutory rate (34.0%) 34.0% 34.0%
State taxes, net of federal
benefit (4.4%) 5.0% 4.8%
Other, net 5.8% - -
--- ---- ----
(32.6%) 39.0% 38.8%
======= ===== =====
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 differences are as follows (in
thousands):
February 27, 1999 February 28, 1998
Inventories $1,206 $842
Prepaid catalog (710) (565)
State operating loss carryforward 1,300 -
Other nondeductible reserves and accruals 82 473
Depreciation and amortization (290) (238)
------- -----
$1,588 $512
====== =====
At February 27, 1999, the Company had approximately $11.3 million of state
operating loss carryforwards, which expire in 2003.
(5) BANK CREDIT FACILITY
During fiscal 1996, the Company entered into a secured line-of-credit
agreement with a bank (the credit facility) that, as amended during fiscal
1998, expires on December 31, 2001. The credit facility bears interest at
the bank's reference rate plus .75% (9.25% at February 27, 1999) or LIBOR
plus 2.25% (7.18% at February 27, 1999). If for any 12 month rolling
period the fixed charges ratio exceeds certain limits, as defined, the
bank's interest rate on the credit facility is decreased by .25% for the
period immediately following such rolling period. A commitment fee of
.375% per year of the average unused commitment amount, as defined, is
payable monthly. The credit facility allows for borrowing up to $100
million based on a percentage of inventory (the advance rate). Borrowings
include 50% of the amounts reserved for outstanding letters of credit.
At February 27, 1999, the Company had approximately $80.2 million of
borrowings outstanding and approximately $.4 million of letters of credit
outstanding. The Company had approximately $1.0 million in available
borrowings under this facility at February 27, 1999. The bank has a
security interest in substantially all assets of the Company. The bank
credit facility agreement contains certain financial covenants, including,
but not limited to, maintaining minimum levels of tangible net worth, and
interest coverage ratios and limitations on capital expenditures. At
February 27, 1999, the Company was in compliance with all financial
covenants.
Pursuant to an amendment with its bank dated as of February 23, 1999, the
borrowing base of the credit facility was increased to a maximum amount of
$100 million. The advance rate was increased to 65% through the last day
of May, 1999, 70% from the first day of June, 1999 through the last day of
October, 1999, and 65% thereafter. The Company is required to maintain an
interest coverage ratio of 2.00:1.00 for the second half of fiscal 1998,
2.00:1.00 for the nine months ended May 31, 1999, and 2.00:1.00, on a
rolling 12 month basis for each quarter, thereafter. The adjusted tangible
net worth as of the last day of the fourth fiscal quarter of 1998 and
first fiscal quarter of 1999 must be at least $40.0 million, the second
and third fiscal quarter of 1999 must be at least $41.0 million, and for
the fourth fiscal quarter 1999 and each fiscal quarter thereafter adjusted
tangible net worth must be at least $42.0 million. Capital expenditures
may not exceed $6.75 million for fiscal 1998 and $6.0 million for any
fiscal year thereafter.
(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 one and one half-to-one 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.
Each share of Class B common stock is convertible to one share of Class A
common stock.
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.
(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 27, 1999, 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 2,275,000 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 vest three
years after the date of grant and terminate 10 years from the date of
grant.
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, 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 - 4.99
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 158,550 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 - 7.06
Granted 233,950 4.50 2,000 4.50
Terminated (122,483) 1.84 - 7.06 (10,500) 4.00
Exercised (14,890) 1.84 - 7.06 (12,500) 4.00 - 7.06
---------- ----------- -------- ------------
Outstanding, February 27, 1999 1,210,965 $1.84 -$7.06 22,000 $4.00 - $7.06
========== ============= ======== ============
Exercisable, February 27, 1999 531,636 $1.84 -$7.06 - $ -
========== ============= ======== ============
Set forth below is a summary of options outstanding and exercisable as of
February 27,1999.
(Outstanding) (Exercisable)
Weighted Remaining Weighted
Range of Average Contract Average
Exercise Prices Options Exercise Price Life Options Exercise Price
- --------------------------------------------------------------------------------
February 27, 1999
$ 1.84 341,424 $1.84 4.59 261,074 $ 1.84
4.00 - 4.88 792,991 4.36 6.81 269,762 4.36
5.75 - 7.06 98,550 6.69 8.31 800 7.06
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, Accounting for Stock Issued to Employees. 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 27, 1999, February
28,1998 and March 1,1997 using the Black-Scholes option pricing model
prescribed by SFAS No. 123.
The assumptions used and the weighted average information for the fiscal
years ended February 27, 1999, February 28, 1998, and March 1, 1997 are as
follows:
Fiscal Years Ended
February 27, February 28, March 1,
1999 1998 1997
Risk-free interest rate 6.25% - 6.55% 6.25% - 6.55% 5.65% - 6.70%
Expected dividend yield - - -
Expected lives 5 - 7.5 years 5 - 7.5 years 7.5 years
Expected volatility 85% 85% 85%
Weighted average grant-date fair value of options
granted during the period $ 3.09 $ 4.74 $ 2.32
Weighted average exercise price of options outstanding $ 3.87 $ 3.88 $ 3.46
Weighted average remaining contractual life of options
outstanding 6.32 years 6.81 years 7.41 years
Weighted average exercise price of 531,636, 399,380,
and 313,388 options exerciseable at February 27, 1999,
February 28, 1998, and March 1, 1997, respectively $ 3.13 $ 3.07 $ 2.98
The effect of applying SFAS No. 123 would be as follows:
Fiscal Years Ended
February 27, February 28, March 1,
1999 1998 1997
Pro forma net income (loss) ($7,729) $4,011 $2,294
Pro forma basic net income (loss) per share ($0.73) $0.38 $0.21
Pro forma diluted net income (loss) per share ($0.73) $0.36 $0.20
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 13,345 shares purchased under the Purchase Plan during fiscal
year 1998.
(7) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
February 27, 1999 February 28, 1998
Vendor receivables $ 16,499 $ 11,806
Credit card receivables 2,422 2,673
Other 2,104 2,756
Trade receivables 1,458 1,529
Allowance for doubtful accounts (213) (218)
--------- ---------
$ 22,270 $ 18,546
========= =========
(8) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in
thousands):
February 27, 1999 February 28, 1998
Other $ 4,348 $ 4,371
Refundable Income Tax 3,400 -
Prepaid catalog 1,670 2,535
Prepaid rent 90 1,297
-------- -------
$ 9,508 $ 8,203
======== =======
(9) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
February 27, 1999 February 28, 1998
Land $ 186 $ 186
Building 672 672
Furniture and fixtures 12,702 9,369
Equipment 9,734 7,747
Equipment under capital leas 4,167 3,569
Leasehold improvements 6,740 6,245
------ ------
34,201 27,788
Less - Accumulated depreciation
and amortization 12,788 8,401
------ ------
$21,413 $19,387
======= =======
At February 27, 1999 and February 28, 1998, the accumulated depreciation
associated with equipment under capital lease was approximately $2.1
million and $1.5 million, respectively.
(10) TRANSACTIONS WITH RELATED PARTIES AND STOCKHOLDERS
The Company has a lease arrangement with Mystic United Realty Trust
(Mystic), for warehouse space at its Chelsea, Massachusetts, facility (the
Chelsea facility) under a non-cancelable 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 cost related to the leased premises, which approximate $0.4
million annually (see Note 11 ).
(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 5.11% to 10.84%, and expire at various
dates through January, 2002.
Future minimum lease payments under capital lease obligations at February
27, 1999 are as follows (in thousands):
Fiscal Year Amount
1999 $ 1,122
2000 541
2001 211
----------
Total minimum lease payments 1,874
Less Amounts representing interest 175
----------
Obligations under capital leases 1,699
Less Current portion of capital lease obligations 1,028
----------
$ 671
==========
(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 (see Note 10). Approximate future
minimum lease payments under operating leases as of February 27, 1999 are
as follows:
Fiscal Year Total
(in thousands)
1999 $ 15,332
2000 13,208
2001 11,553
2002 8,854
2003 4,729
Thereafter 8,902
-----
$ 62,578
========
Rent and related expenses charged to operations during each of the years
ended February 27, 1999, February 28, 1998, and March 1, 1997 were
approximately $18.0, $12.5, and $10.3, 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 27, 1999, February 28, 1998, and March 1,
1997. The Company's contributions vest at a rate of 20% per year,
beginning after one year of employment. The Company has made matching
contributions of approximately $0.2 million to the plan for each of the
fiscal years ended February 27, 1999, February 28, 1998, and March 1,
1997. The Company pays the administrative costs of the Plan.
(13) SIGNIFICANT VENDOR
Purchases from the Company's largest single supplier were 10.8%, 9.0% and
10.4% of total purchases for the years ended February 27, 1999, February
28, 1998, and March 1, 1997, 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. At February 28, 1998 the restructuring was
complete.
(15) SELECTED INFORMATION BY BUSINESS SEGMENTS
The Company reports segment information according to SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
131 requires disclosures about operating segments in annual financial
statements and requires selected information about operating segments in
interim financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker, or
decision makers, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision maker is the chief
executive officer.
The Company sells its products through its Woodworkers Warehouse, Post
Tool and Golf Day retail stores and its Trend-lines and Golf Day catalogs.
These businesses have been aggregated into their respective reportable
segments based on the management reporting structure. The accounting
policies of the business segments are the same as those described in the
summary of significant accounting policies.
Information as to the operations of the different business segments is set forth
below for each of the years ended February 27, 1999, February 28, 1998 and March
1, 1997 (in thousands):
Fiscal Years Ended
February 27, 1999 February 28, 1998 March 1, 1997
Net sales
Retail
Tools $148,444 $133,000 $115,184
Golf 68,587 38,612 25,158
Catalog
Tools 27,945 34,451 43,283
Golf 17,574 25,080 24,957
------- --------- ---------
$262,550 $231,143 $208,582
========= ========= =========
Income (loss) from operations
Retail
Tools $5,518 $9,094 $7,528
Golf (267) 2,260 63
Catalog
Tools 2,462 5,655 4,724
Golf 496 4,050 3,402
General corporate expenses (13,629) (10,527) (8,051)
======== ======== =========
($5,420) $10,532 $7,666
======== ======== =========
Identifiable assets
Retail
Tools $98,560 $86,495 $76,044
Golf 62,209 38,369 16,531
Catalog
Tools 12,431 13,556 14,159
Golf 8,062 9,372 8,849
General corporate assets 11,676 7,660 5,471
====== ====== =========
$192,938 $155,452 $121,054
========= ========= =========
Depreciation and amortization
Retail
Tools $2,345 $1,543 $1,199
Golf 1,854 853 328
Catalog
Tools 170 155 194
Golf 107 113 111
General corporate expenses 262 172 -
======= ========= =========
$4,738 $2,836 $1,832
======= ========= =========
Capital expenditures
Retail
Tools $2,564 $3,065 $1,859
Golf 2,749 2,601 1,049
Catalog
Tools 161 536 375
Golf 101 390 217
General corporate expenditures 255 596 -
======= ========= =========
$5,830 $7,188 $3,500
======= ========= =========
The Company operates from a single distribution center in Revere,
Massachusetts, for its Woodworkers Warehouse and Golf Day operations and
utilizes common labor pools, common management at the corporate level and
a single telemarketing sales force. Post Tool, Inc. has a distribution
center facility in Hayward, California. As a result, many of the expenses
of the Company are shared between the business segments. The disclosures
in the above table were determined after allocating shared resources and
expenses.
(16) QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following summarized unaudited results of operations for fiscal year
1998 and 1997 have been accounted for using generally accepted accounting
principles for interim reporting purposes and include adjustments
(consisting of normal recurring adjustments) that the Company considered
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 Year 1998
Net sales $59,639 $64,897 $60,102 $77,912
Gross Profit 17,581 20,007 18,367 25,018
Net (loss) income (4,603) (3,659) 59 793
Basic net (loss) income per share ($0.43) ($0.34) $0.01 $0.07
Diluted net (loss) income per share ($0.43) ($0.34) $0.01 $0.07
Basic weighted average common
shares outstanding 10,642 10,650 10,651 10,651
Diluted weighted average common
shares outstanding 10,642 10,650 10,723 10,781
Fiscal Year 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 share $0.04 $0.04 $0.08 $0.26
Diluted net income per share $0.04 $0.04 $0.08 $0.24
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
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance, Charged to Balance,
Beginning Costs and End
Of Period Expenses Deductions Of Period
ALLOWANCE FOR DOUBRFUL ACCOUNTS
March 1, 1997 $ 93 $ 92 $ - $ 185
======== ======== ======== ========
February 28, 1998 $ 185 $ 89 $ 56 $ 218
========= ======== ======== ========
February 27, 1999 $ 218 $ - $ 5 $ 213
========= ======== ======== ========